The phoney war between British banks Lloyds TSB and Abbey National looks set to drag on over Christmas unless Lloyds decides to turn aggressor and firm up its tentative takeover offer for Britain's second biggest mortgage bank.

Lloyds has been threatening to muscle in on Abbey National's month-long efforts to negotiate a nil-premium merger with Bank of Scotland but has not yet put a firm offer on the table.

Unless Britain's mergers watchdog, the Takeover Panel, steps in to force the pace, the current stalemate between the two camps could carry on, industry sources said yesterday.

But Lloyds TSB, Britain's third biggest bank, may approach the British competition watchdog next week about its Abbey takeover proposal.

The Sunday Business newspaper said Lloyds could make a submission to the Office of Fair Trading (OFT), which would increase pressure on Abbey National, Britain's fifth-largest bank, to begin talks with Lloyds on a deal.

A Lloyds spokeswoman could not comment on any submission to the OFT.