Nationwide, Britain's biggest building society, will not pass on any further cuts to the Bank of England base rate to customers with tracker mortgages, The Times has learnt.

The lender plans to invoke a rule in its mortgage contracts allowing it to freeze tracker rates when the base rate falls below 2 per cent, affecting more than 200,000 customers.

Its decision sets the Nationwide on a collision course with the Government. Last night a Treasury aide reiterated Alistair Darling's view. “The Chancellor has repeatedly made clear that he expects lenders to do their best to help their customers through these difficult times,” the aide said.

About 4.2 million borrowers on tracker deals, which are pegged to the base rate, have benefited from a series of cuts by the Bank of England.

The Bank's Monetary Policy Committee will meet again next week to decide whether to cut rates further to stimulate the economy. A cut of half a percentage point would save homeowners on a £150,000 interest-only tracker deal about £60 a month.

Andrew Montlake, partner of Cobalt Capital, a broker, said Nationwide's customers would be disappointed. “Borrowers may feel that they took out a tracker to get the benefit of falls in the base rate,” he said.

“However, lenders will struggle to cut interest rates for borrowers any further because banks and building societies need to protect profit margins.”

The building society has promised to pass on any future cuts to customers on its standard variable rate, which is currently at 4 per cent.

Nationwide said that it had decided to enforce the threshold or “collar” on the majority of its tracker mortgages at 2 per cent to protect savings rates, which have fallen heavily. However, it failed to guarantee that savings rates would not be reduced if the Bank does lower the base rate next week. This week Nationwide cut its savings rates by up to 1.1 percentage points.

A spokesman said: “Savings rates are at an historic low and this move means we will not be forced into a position where we could have to cut savings rates more aggressively than we would otherwise like to.”

The collar written into the majority of Nationwide's tracker mortgages is 2.75 per cent, but the building society did not enforce it when the Bank of England reduced the base rate to 2 per cent last month. However, it warned customers that the policy was likely to be temporary.

In November, Nationwide introduced a lower collar for new tracker customers, pegged at 1 per cent.

It is not the only lender to enforce a threshold or collar that stops tracker rates falling past a certain point. Skipton, Yorkshire and Norwich & Peterborough building societies have similar rules, along with a handful of other small building societies.

Halifax, Britain's biggest lender, had a collar which meant that tracker rates would fall no lower than 3 per cent, regardless of how far the Bank of England cut the base rate. However, last month the Financial Services Authority told Halifax that its collar could be unenforceable, leading the lender to say it would not invoke the rule.

Ray Boulger, of the broker John Charcol, said: “Nationwide has always been clear in its terms and conditions about the collar in its tracker mort- gages. As interest rates plummet, lenders with no collar on their tracker mortgage products may struggle to compete for savings customers.”

Most other high street lenders, including Lloyds TSB, Barclays and Royal Bank of Scotland, do not have collars on their tracker mortgages.

FLUCTUATING FORTUNES

— After the Bank of England was founded in 1694, interest rates were set at 6 per cent when a £1.2m loan was arranged for the new king, William (III) of Orange, to stabilise the economy

— By 1699 rates were at 4.5 per cent, and were changed only twice during the 18th century

— As the industrial revolution transformed the economy in the 19th century, there was increasing demand for capital and interest rates changed several times a year. After the Crimean War (1853-56) rates climbed to 10 per cent

— In the 1930s Great Depression, rates held at 2 per cent; they rose to 2.5 per cent in 1951

— The 1973 oil crisis put them up to 13 per cent They hit 17 per cent during Mrs Thatcher's first Government and fell to 10 per cent in 1983

— Norman Lamont, then Chancellor, raised rates from 10 to 12 per cent in 1992, and then to 15 per cent to prevent sterling's value falling. He failed.