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Rishi Sunak has written to Boris Johnson warning that the UK’s travel restrictions are “out of step” in comparison to other countries, reports suggest.

According to the Sunday Times newspaper, the chancellor has raised concerns with the prime minister about the damage that the current border controls are doing to the UK’s economy and has called for holiday rules to be relaxed.

Mr Sunak is said to have emphasised in particular the impact that the international travel rules are having on the tourism and hospitality sector and noted that the success of the country’s vaccination programme should warrant a weakening of the restrictions.

Chancellor of the Exchequer Rishi Sunak after delivering his 'Mansion House' speech at the Financial and Professional Services Address, previously known as the Bankers dinner, at Mansion House in the City of London. Picture date: Thursday July 1, 2021.
No 10 did not deny that the PM received a letter from Rishi Sunak

A No 10 source did not deny the PM had received a letter from the chancellor, but said the correspondence was not related to next week’s travel review – due to take place on Thursday.

Many holidaymakers in the UK will hope that the new rules announced this week, which will be in place for most of August, will include the movement of more countries to the amber and green lists.

The government has faced increased criticism over its travel policy in recent weeks since placing France on the new, “amber-plus” list.

The move means travellers returning from France will still have to quarantine for 10 days regardless of vaccination status.

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Ministers said the decision was due to the increasing prevalence of the Beta variant of coronavirus in France.

Chaos at Heathrow airport as people from green and amber countries mixed in the queues.
Holidaymakers were disappointed last month when France was moved to the new ‘amber-plus’ list

Foreign Secretary Dominic Raab said this was a particular problem “in the Reunion bit of France” – Reunion being 6,000 miles away from Paris.

But the transport secretary later clarified that concerns regarding the variant also apply to northern France.

A French minister referred to this decision as “excessive” and accused the UK government of not following the science.

There have been suggestions that France could be moved back to the official “amber” list in the next review on 5 August, which would mean travellers could skip the isolation period if they have received two doses of a coronavirus vaccine.

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Rishi Sunak has said weakening border controls would help boost the economy following the pandemic, reports suggest

There is also speculation that Spain could take over France’s position on the “amber-plus” list in what would be a blow for returning travellers who would have to quarantine for 10 days on their return even if double-jabbed.

No 10 has said it is too early to speculate on what changes could be made but expressed the PM’s desire to see more travel restrictions lifted.

Last week, the government also announced that fully-vaccinated travellers from the US and Europe – with the exception of France – will be able to travel to the UK quarantine-free.

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Five million more households yet to feel full rate hike burden, Bank of England warns




Five million more households yet to feel full rate hike burden, Bank of England warns

The Bank of England has said that UK households and businesses have been “resilient” in the face of rising interest rates – but repeated previous warnings that the full effect of higher interest rates was yet to come through.

Unveiling its latest Financial Stability Report – which is published twice yearly – the Bank said that household finances remained “stretched by increased living costs and higher interest rates, some of which has yet to be reflected in higher mortgage repayments.”

The Bank, which raised its main policy rate 14 consecutive times between December 2021 and August this year to the current 15-year high of 5.25%, said that, because most mortgages taken out over recent years had been at a fixed interest rate, higher interest rates tended to have a lagged effect on households with a mortgage.

It said that around 55% of mortgage borrower accounts, around five million, had repriced since interest rates began to rise in late 2021.

But it warned: “Higher rates are expected to affect around five million [further] households by 2026.

“For the typical owner-occupier mortgagor rolling off a fixed rate between [April to June] 2023 and the end of 2026, their monthly mortgage repayments are projected to increase by around £240, or around 39%.

“As higher mortgage rates continue to flow through to UK households, the average debt servicing burden will increase.”

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The report noted that, although average quoted mortgage rates had come down since the Bank’s last Financial Stability Report in July this year, they remained “higher than in the recent past”.

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People are waiting for mortgage rates to drop

Andrew Bailey, the governor, emphasised that the UK banking sector remained well capitalised and had come through the Bank’s recent stress tests well.

He added: “If economic and financial conditions were to materially worsen for households and businesses, our banking sector has the capacity to support them.”

He said that there was evidence that net interest margins (the spread between what banks charge borrowers and pay depositors and a key driver of bank profits) had peaked.

The governor highlighted that, “thank goodness”, despite higher mortgage costs there had not been a big increase in home repossessions as in the past.

He added: “The financial system is much better placed to support borrowers. It’s a benefit of financial stability that the system is able to take these actions. And that’s a good thing, a very good thing.”

Mr Bailey said that, while UK households and businesses had remained resilient in the face of higher borrowing costs, the Bank had noticed an increase in arrears among home owners – both those living in their own homes with a mortgage and among buy-to-let landlords.

He said that the Bank was “very alert” to the issue of renters and particularly in view of the fact that, with home ownership in decline, renters now formed a larger proportion of the population and also tended to be at the lower end of the income scale.

He went on: “There is obviously a financial stability lens on this and it comes through the buy-to-let market.”

Asked about the way in which some borrowers were responding to higher mortgage rates Sarah Breedon, the deputy governor responsible for financial stability, said the Bank had noted an increased uptake, over time, of long-dated mortgages of up to 35 years and particularly among younger borrowers.

She added: “The more important thing is lending into retirement when people might not have the income [to cover mortgage payments]. We don’t judge it as a financial stability risk but it is something we are watching.”

Mr Bailey said that, among corporates, there was also evidence of some arrears building up and in particular among small and medium sized businesses.

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How is the mortgage crisis affecting you?

But the report noted that the share of corporates at higher risk had fallen from its pandemic peak and pointed out that the bulk of UK corporate debt on fixed rates was due to mature in or after 2025.

The governor added: “We judge that the UK corporate sector as a whole has remained resilient.”

Further afield, Mr Bailey said that the overall risk environment remained challenging, singling out the Chinese economy – where many parts of the property sector remain under strain – as a particular risk for the global economy. He added that the “tragic events in the Middle East” had also contributed to geopolitical uncertainty.

The governor also sounded a warning on vulnerabilities in so-called ‘non-bank’ finance – services such as loans and credit which are not provided by banks but by other institutions, such as insurers, venture capital firms and currency exchanges.

In particular, he highlighted market-based finance – the provision of types of corporate credit, such as high-yield bonds and leveraged loans – where he said risks remained significant and, in some cases, had increased since the Bank’s last report in July.

He added: “There are now larger imbalances in the market in derivatives for US government debt – a key instrument in the financial system.”

The governor said that this could contribute to market volatility if hedge funds needed to unwind their positions in such instruments rapidly and noted that sharp movements in the prices of such assets could lead to wider dislocations as was shown during the LDI crisis which followed Kwasi Kwarteng’s mini-Budget in September last year.

The report also revealed that, since July, the Bank’s financial policy committee had been briefed on the continued adoption of artificial intelligence and machine learning in financial services and their potential financial stability implications.

Mr Bailey said: “I don’t pretend to be an expert on AI, because I am not, but when I speak to people who are they make the point [on] the complexity of the code behind it and the extent to which it is understood.

“It obviously has tremendous potential and particularly to improve productivity which would be a welcome thing.”

The governor also paid tribute to Alistair Darling, the former Chancellor, who died last week. He said Lord Darling was “wise, kind and had an absolutely wicked sense of humour.”

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EU U-turns on Brexit electric vehicle tariff deadline




EU U-turns on Brexit electric vehicle tariff deadline

The European Union has bowed to demands from carmakers across Europe and the British government for a delay to the introduction of 10% export tariffs on electric vehicles.

Brexit commissioner Maroš Šefčovič had initially refused calls to extend a trade deal deadline that, from January, 60% of a battery’s total value had to be sourced domestically to avoid the charge.

The so-called rules of origin would have applied to vehicles made in the bloc and sent to the UK – and vice-versa.

The commissioner was concerned that a delay would have knocked EU battery investment.

But he was reported, by the Financial Times on Tuesday, to have changed his mind and proposed a three-year extension.

The decision was formally adopted by the European Commission on Wednesday and is now expected to be implemented following consultations with member states.

The Commission also said it was setting aside an additional €3bn to boost the EU’s battery manufacturing industry.

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Maros Sefcovic, Vice President of the European Commission
Maros Sefcovic feared that an extension to the tariff’s implementation would send the wrong signal on investment

Europe’s car industry, many EU national governments and the UK have long argued that the tariff would have been piled on to the cost of new electric cars sold Europe-wide, making them less attractive to buyers at a time when households are already struggling to afford basics.

In addition to the inflationary pressures, the move was also seen as further harming demand for the vehicles at a time when they remain more expensive than the traditionally-powered cars they are set to slowly replace.

Carmakers on both sides of the Channel are currently struggling to source their own batteries, with most imported from China, despite a growing number of battery gigafactory projects getting the green light.

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Sept: Will UK-EU vehicles’ tariffs be eased?

Nissan and Jaguar Land Rover‘s owner are among manufacturers to have secured government support for factories in the UK.

The additional €3bn announced in Brussels is also an incentive for investment.

Both the EU and UK have a 2035 deadline for a ban on the sale of new vehicles powered by petrol or diesel.

The government in Westminster had initially sought a 2030 timeframe but full implementation was overturned by prime minister Rishi Sunak on cost grounds, to the fury of carmakers, the wider business community and climate change activists.

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Coventry Building Society tables bid to remutualise Co-operative Bank




Coventry Building Society tables bid to remutualise Co-operative Bank

One of Britain’s biggest building societies has tabled a surprise takeover bid for the Co-operative Bank – a deal that would effectively remutualise one of the country’s most recognisable high street lenders.

Sky News can exclusively reveal that the Coventry Building Society has proposed a tie-up with the Co-operative Bank that would create a financial services powerhouse with close to £90bn in assets.

Talks between the two sides are understood to be progressing, although they are not yet being undertaken on an exclusive basis.

The Coventry’s intervention in the auction of the Co-operative Bank will surprise the industry, since the mutual had not been tipped as a likely bidder.

However, industry insiders said a combination of the two businesses would present a strong cultural and financial fit, while also delivering a huge boost to the cause of financial services mutuals in Britain.

A combined group would be comparable in size to Virgin Money, the London-listed banking group, and would have about five million customers.

The Coventry, which is being advised by the accountancy firm KPMG on the talks, is regarded by peers and regulators as having a credible management team, led by Steve Hughes, its chief executive.

Until last year, the society – the UK’s third-largest by assets – was chaired by Gary Hoffman, the veteran banker who rescued Northern Rock during the 2008 banking crisis.

A combined Coventry-Co-op Bank would be comparable in scale to Virgin Money

Nevertheless, a takeover on the scale of the Co-operative Bank would represent a hugely ambitious move for an organisation which has undertaken few sizeable corporate deals.

One source said the Coventry, which has about two million members, appeared to be “extremely serious” about a deal.

The price under discussion between the Coventry and the Co-operative Bank and their respective advisers was unclear on Wednesday.

Banking analysts have previously touted a price of approximately £800m for the Co-operative Bank.

A spokesman for the mutual said: “At Coventry Building Society, we remain open to opportunities that may enhance the value and services we offer to our current and future members, but we don’t comment on any public speculation.”

Combining the organisations would give the Coventry a major boost in the personal current account and business banking markets.

It was unclear on Wednesday what the fate of the respective brands would be after any deal.

The Co-operative Bank has also drawn interest from other suitors during an auction which kicked off earlier this year.

Shawbrook Bank tabled a predominantly paper-based offer, while Aldermore Bank withdrew from the process without submitting a formal proposal.

Regulators are being kept closely informed about the talks, with one bank analyst saying a takeover by the Coventry would vindicate the constructive approach taken by the Prudential Regulation Authority towards the Co-operative Bank as it encountered severe turbulence during the last decade.

If the Coventry was successful with a bid, it would effectively deliver the Co-operative Bank back into mutual ownership.

In 2013, the Co-operative Bank’s bid to acquire the branch network which became TSB was left in ruins when the scale of its own crisis emerged.

At the time, it was part of the wider Co-op Group, but was forced to turn to American hedge funds to secure a £1.5bn rescue, even as its former chairman, Paul Flowers, was left humiliated by tabloid revelations about his private life.

The lender then needed a further bailout by investors in 2017, with two major investors – Bain Capital Credit and JC Flowers – subsequently taking a 10% stake in the company.

The remainder of its equity is owned by a syndicate of hedge funds.

Earlier talks about a sale of the Co-operative Bank to Cerberus Capital Management, an often-controversial investor, broke down in December 2020.

In the autumn of 2021, the Co-operative Bank approached Spanish-owned TSB about a merger, but talks failed to progress.

PJT Partners and Fenchurch Advisory Partners are advising the Co-operative Bank on its sale process.

A spokesman for the Co-op Bank declined to comment.

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