Mandelson will ignore competition fears and allow Lloyds-HBOS deal

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The Business Secretary was due to make the announcement following a report by the Office for Fair Trading on the deal.

The competition authorities could object to such a merger on the grounds the new bank would be so large that it could undermine competition.

But the Government has passed legislation to override these concerns to take into account the economy's financial stability and the public interest. The Department for Business, Enterprise and Regulatory Reform was remaining tight-lipped about the announcement before the markets closed today.

Downing Street confirmed the report was due to be published. The Prime Minister's official spokesman added the order allowing the Government to permit the merger had been laid in Parliament on 7 October and came into force on the 24th.

The OFT handed a report on the takeover's impact on competition last Friday to Lord Mandelson, who must decide whether to refer the merger to the Competition Commission. The deal would create a bank controlling about one quarter of British current accounts and 28 per cent of home loans.

If Lord Mandelson decides competition fears outweigh concerns over financial stability, he could refer the takeover. But he is expected to conclude the public interest is greater.

Lloyds TSB has said it expects to complete its takeover of HBOS and capital raising by January, after giving shareholders a vote on both in the third week of next month. Lloyds TSB cut its offer price after the bailout and is now offering 0.605 of its shares per HBOS share, down from 0.833. The Government is injecting £17 billion into the two banks and ministers have made clear the public funds are dependent on the merger going ahead.

Barclays today showed its determination to avoid the fate of rivals when it unveiled fresh funding of more than £7 billion, raised from the governments of Qatar and Abu Dhabi, to ensure that it remains a pillar of financial strength and will not need government help to stay afloat.