SHADOW chancellor John McDonnell has stepped up his calls for a public inquiry into the Libor rate affair.

The London Interbank Offered Rate is the rate at which banks lend to each other, and is used to set millions of pounds worth of financial deals, including car loans and mortgages.

McDonnell has written to Chancellor Philip Hammond insisting the investigation is needed due to concerns about the rate.

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His letter to the Chancellor states that a BBC Panorama programme “evidenced the possible role of representatives of the Bank of England and officials of a bank in large-scale Libor rigging”.

The shadow chancellor said with small businesses and public bodies dependent on loans and monetary products linked to the Libor rate, efforts to rig it could have a serious financial impact.

McDonnell said: “The revelations this week of the possible pressure being applied by senior public officials on banks to rig one of the world’s most important financial metrics demand an immediate response from this Government.

“Continuing official silence from the Chancellor is not acceptable when confronted with this scale of rigging. It is essential we clarify who took the decisions to rig the Libor index, and when, so that the schools, NHS hospitals and local councils that lost out can be paid the compensation that is rightfully due and public confidence in our banking system and official institutions can be restored.”

Responding to last week’s Panorama report, a Bank of England spokesman dismissed the claims, saying: “Libor and other global benchmarks were not regulated in the UK or elsewhere during the period in question.”