wider economy

The other obvious example of a developed European economy being overloaded with debt on the household side is the UK. The credit channel has already been kicking in. Commercial banks are reluctant to pass on lower interest rates to the wider economy and new mortgage approvals are contracting.

Does 'wider economy' refer to other economies other than UK?

I think "wider economy" means everybody who borrows from commercial banks, which is pretty much everybody.

The central bank usually lends money to commercial banks; therefore, they can lower the interest rate, but if commercial banks don't lower the interest rate they are lending money at, they are not "passing on" lower interest rate.