BANK charges are set to spiral as a result of the state guarantee for four domestic banks and two building societies, the Irish Independent can reveal.

But there could be a boost for consumers and businesses, with a string of economists here and across the EU predicting that European interest rates will start falling from December.

Several economists are forecasting that rates are likely to come down even further next year.

However, the benefits of lower mortgage rates could be wiped out, as banks are poised to increase credit card rates, current account charges and overdraft costs.

The revelation followed another day of drama, in which the Government's unprecedented €400bn bailout scheme for Irish banks continued to provoke a mixed response, both at home and abroad.

As the legislation was pushed through the Dail and Seanad late last night, it emerged that Finance Minister Brian Lenihan will admit some non-Irish-owned banks into the system.

The move would appear to open the door for Ulster Bank, and possibly Halifax, to get under the state borrowing guarantee, while excluding National Irish Bank, Rabo Direct and ACC.

The decision came after lobbying from banks, pressure from the opposition and anger from the British government.

After previously criticising the Irish bailout, the British government came under increasing pressure to follow Taoiseach Brian Cowen's example and offer a Stg£1.1 trillion guarantee to safeguard UK banks.

Meanwhile, the revelation that bank charges are set to rise significantly provoked a furious response from consumers last night.

The move means taxpayers could end up paying for the state insurance scheme for banks on the double -- through providing both a guarantee and higher bank costs.

Consumers' Association chairman James Doorley last night slammed the move to hike banking transaction charges.

The six banks/building societies bailed out by the State made combined profits of €4.4bn last year.

Mr Doorley said it was "totally unacceptable" that banks were planning to punish consumers and taxpayers by increasing charges in a bid to recoup losses due to irresponsible lending.

Double

"Consumers and taxpayers should not end up paying on the double for the bad decisions made by banks. The problems in the banks were not caused by consumers but by the people at the top of the banks."

Analysts at Goodbody Stockbrokers last night said the era of low-cost banking was "well and truly over".

Goodbody analysts Eamonn Hughes and Anna Lalor said banks would be forced to cut their dividends, increase their profit margins and raise charges because of the need to have higher amounts of capital.

But Ms Lalor said that banks were unlikely to cut deposit rates, as they need to amass funds, but overdraft and credit card rates were likely to rise, along with current account charges.

And yesterday, EU Internal Markets Commissioner Charlie McCreevy said banks across Europe would have to set aside more capital to cover risky lending.

Competition

Competition among banks has been cut-throat in the past few years, with foreign-owned banks like Halifax and National Irish Bank forcing Irish-owned banks to cut their charges and rates.

Meanwhile, worsening conditions in global financial markets and the slowdown in economies around the world will force the European Central Bank to lower interest rates, economists at National Irish Bank, IIB Bank and NCB Stockbrokers in Dublin said.

And this view was backed up by economists in Germany's Deutsche Bank and the London offices of Citigroup.

National Irish Bank's Ronnie O'Toole said rates could come down by 0.25pc as soon as December, with two further cuts likely in February and April next year.

Dr O'Toole added that another cut was also likely in June 2009, a move that would take rates as low as 3.25pc. ECB rates are currently 4.25pc.

Economists at the London offices of Citigroup said there was a "decent chance" that the ECB will enact "emergency" interest-rate cuts as early as today in a bid to calm financial markets and spur economic growth.

Austin Hughes of IIB Bank said he expects the first rate cut in December, with rates to fall to 3pc by next year.

IRISH INDEPENDENT, Charlie Weston (Personal Finance Editor)