Santander has approached its fellow Spanish banking group Sabadell about a takeover of TSB, its British high street bank.

Sky News has learnt that Santander is among the parties which have expressed an interest in a potential deal, months after its boss denied that it was seeking to offload the UK’s fifth-largest retail bank.

City sources said on Wednesday that Santander had not tabled a formal offer for TSB, and was not certain to do so.

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However, the fact that it has contacted Sabadell about a possible transaction involving TSB suggests that Ana Botin, the Santander chair, may be open again to expanding its presence in Britain’s high street banking market.

The extent of the overlap between the two companies’ UK branch networks was unclear on Wednesday morning.

Santander, which like other banks has been engaged in an extensive branch closure programme for some time, now has roughly 350 UK branches, while TSB operates roughly half that number.

The value that TSB, which was acquired by Sabadell in 2015 from Lloyds Banking Group, might attract in any takeover is also unclear.

Sabadell is in the middle of attempting to thwart a hostile takeover by rival Spanish bank BBVA – a deal revealed by Sky News last year – with a disposal of TSB said to be on the cards regardless of whether or not that bid is successful.

Ms Botin insisted that the UK remains a core market for Santander in the wake of speculation that she might sanction a sale of the business.

The company recently confirmed a Sky News report that Sir Tom Scholar, the former top Treasury official sacked by Liz Truss during her brief premiership, was joining the bank’s UK arm as its next chairman.

NatWest Group, which recently returned to full private ownership, was reported to have submitted an offer worth about £11bn for Santander UK.

No discussions are ongoing about such a deal.

NatWest, Barclays and HSBC have also been touted as potential suitors for TSB, although at least two of those three banks are thought to have little interest in bidding.

TSB was effectively created from the ashes of the 2008 financial crisis, when a vehicle set up to acquire assets from distressed banking groups lost out in an auction to a bid from the Co-operative Bank.

That deal fell through when it emerged that the Co-operative Bank itself was in a perilous financial state.

Sabadell explored a sale of TSB about five years ago, but opted to retain the business.

Goldman Sachs is thought to be advising Sabadell on the prospective sale of TSB.

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Responding to a report in the Financial Times on Sunday that TSB had been put up for sale, Banco Sabadell said: “Banco Sabadell confirms that it has received preliminary non-binding expressions of interest for the acquisition of the entire share capital of TSB Banking Group plc.

“Banco Sabadell will assess any potential binding offer it may receive.”

Santander declined to comment.

The TSB process emerged just hours after Sky News had revealed that Metro Bank, the high street lender, had been approached by Pollen Street Capital, the private equity firm, about a possible takeover.

The absence of a statement from either party implies that the approach was rejected and that Pollen Street has abandoned its interest, at least temporarily.

Inflation eased to an annual rate of 3.4% in May, according to official figures released this morning, but the Bank of England is widely expected to leave interest rates on hold despite that.

The Office for National Statistics (ONS) reported the consumer prices index measure eased from 3.5% the previous month.

It said that despite upwards pressure on prices from food and clothing, the decline was driven by falls in airfare prices following Easter.

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The headline figure also reflected a small downwards correction to ONS inflation data ahead of April related to vehicle excise duty calculations.

ONS acting chief economist Richard Heys said: “A variety of counteracting price movements meant inflation was little changed in May.

FOOD INFLATION AT 15-MONTH HIGH

James Sillars

Business and economics reporter

@SkyNewsBiz

Today’s headline inflation number suggests a flat picture for price growth overall.

But there is one stat that households will already be familiar with after a visit to the supermarket.

A jump in some food prices has been noticeable, with the ONS flagging a leap in its food and non-alcoholic drinks measure of inflation to a 15-month high.

Why the rise? Chocolate has spiked significantly this year due to a cocoa shortage blamed on poor harvests. Meat, particularly beef, has shot up on high global demand and rising costs.

The food and non-alcoholic drinks category has been on the rise for five months in a row. But the good news is that high rates of sales promotions by chains – discounts – are helping keep a lid on overall grocery bills.

“Air fares fell this month, compared with a large rise at the same time last year, as the timing of Easter and school holidays affected pricing. Meanwhile, motor fuel costs also saw a drop.

“These were partially offset by rising food prices, particularly items such as chocolates and meat products. The cost of furniture and household goods, including fridge freezers and vacuum cleaners, also increased.”

Forecasts suggest that inflation will tick up over the second half of the year – with effects from Donald Trump’s trade war and rising commodity costs amid events in the Middle East among the concerns ahead for the Bank of England.

It has adopted a “careful” and “gradual” approach to interest rate cuts as a result.

That is despite weakening employment data, reported earlier this month, which showed a tick up in the official jobless rate and a 109,000 reduction in payrolled employment.

Other elements of the inflation data are also supportive of an argument for rate cuts.

Core CPI inflation – a measure that strips out volatile elements such as energy and food – eased from 3.8% in April to 3.5% while services inflation tumbled sharply to 4.7% from 5.4% the previous month.

Nevertheless, the Bank is widely expected to leave Bank rate on hold on Thursday following the June meeting of its rate-setting committee.

LSEG data showed after the inflation data that financial markets currently see two more interest rate cuts by the year’s end.

Risks to prices ahead will come from a sustained Israel-Iran war pushing up oil and gas prices but there have been different views among policymakers over whether the trade war will result in inflation or not.

As such, the minutes of the Bank’s meeting will be closely scrutinised for hints on whether rate cut caution is easing.

Kellogg’s cornflakes, Bonne Maman jam, Kent Crisps, Brewdog beer… these are the items on the supermarket shelves in front of me. 

I’m in a branch of Azbuka Vkusa (or ‘Alphabet or Taste’) in Moscow, where the aisles look remarkably like those in a Tesco, Sainsbury’s or Waitrose.

Russia is the most sanctioned economy in the world, but here we are, more than three years into its supposed isolation, and the shelves are still stocked with Western goods.

So how come?

Many of the products on sale here are what are called ‘parallel imports’. That means they’ve entered Russia via third countries, without the trademark owner’s permission.

Russia legalised the practice soon after its invasion of Ukraine to sidestep sanctions and to shield consumers from the impact of a mass exodus of foreign brands.

So despite companies pulling out of Russia, their products can often still be found here.

Take Coca-Cola for example. It stopped selling to Russia and ceased operations here in 2022, but there’s no problem buying its drinks.

Next to each other on the supermarket shelf, I found one can from France, one from Poland, one from Iraq and even a bottle from the UK. “Please recycle me,” the cap hopefully implores.

Like other businesses that say they have not authorised imports of their brands into Russia, there’s little Coca-Cola can do about it. The company declined a request to comment.

This specifically isn’t sanctions-busting, since food and drink are generally exempt from the restrictions imposed by Britain and the EU. It is, however, an example of how trade bans (self-imposed, in this case) can be circumvented. And the very same practice is being used on some sanctioned goods, like luxury cars.

At Frank Auto, a glitzy car showroom in northwest Moscow, there’s a Porsche Cayenne Coupe, a Mercedes EQE and a BMW X5. All are under two years old, i.e. younger than the sanctions regime that was designed to keep them out.

“Germany officially does not know that we import cars for clients from Russia,” Irina Frank, the dealership owner, tells me unashamedly.

“It’s done through multiple moves. An order is placed, for example, from Turkey, then from Turkey it goes to Armenia, and from Armenia we deliver the car to Russia.”

She explains that the cars are imported to order, because of the cost involved and the uncertainty.

“Now, every transaction is checked, and there were cases when you even lost all the money, and cannot take the car out,” she says.

But it’s clearly still possible. In February, Irina sold a Ferrari Purosangue to a customer who paid 130 million roubles (1.43 million euros) – 30% more than what it would have cost without sanctions, she says.

And she even claims to have sold Range Rovers from Britain.

“Russia, you know, is a special country. Our people really love everything that is the most expensive, the coolest, in the maximum configuration,” she adds.

Sky News has reported extensively on how British and European cars are still entering Russia despite sanctions. But this is the first time we’ve spoken to some of those who have imported them.

In a car park in front of Moscow’s Belarussky train station, we meet Ararat Mardoyan, who owns a car brokerage firm called Autodegustator. He says he imported dozens of British and European cars into Russia during the first two years of the war, including his own vehicle.

His black Volkswagen took six months to arrive from Germany, after being shipped via Belgium, Georgia, Armenia and Iran.

“You’re not doing anything wrong,” he insists, when I ask if he’s helping Russia avoid sanctions.

He refers to the Eurasian Economic Union as justification – a customs union which Russia shares with Armenia, Belarus, Kazakhstan and Kyrgyzstan.

“It’s like [the] European Union,” he argues.

“If the good hits Kazakhstan, for example, it’s already not only a Kazakh product, it’s already a product of customs union.”

I suggest that such moves are not in the spirit of sanctions, and that some would question the morality of it.

“I don’t think it’s something from the sphere of immorality. It’s business,” he says. “People have to work and survive.”

Ararat stopped importing European cars at the start of last year because of increased risks and decreasing profits, citing how he had to scrap an entire fleet of Range Rovers after their diagnostic systems were blocked as soon as they were switched on.

But he doesn’t believe the practice will ever cease, no matter how pricey and problematic it becomes.

“People who want to drive Ferrari,” he says, “they always have the money, and where there is the demand, there will always be supply.”

“This is like a globalised world. I don’t believe there’s any chance of isolating Russia. It’s not possible.”