BANKING
Average mortgage rate now exceeds 6%
The average rate on a two-year fixed-rate mortgage has now reached 6.07%, according to Moneyfacts, the first time the average rate has breached the 6% mark since November 2008. Turmoil in the markets following the Government’s mini-Budget saw lenders withdraw a record number of deals, but some banks and building societies are now slowly returning products to market, albeit with prices that incorporate much higher interest rate forecasts. Banks have also been increasing the interest rate “stress test” they apply to borrowers to see if they can afford mortgage repayments. Meanwhile, bosses from Barclays, NatWest and Lloyds Banking Group are expected to attend a meeting with Chancellor Kwasi Kwarteng today during which mortgage lending will be discussed. One source told the FT that other topics likely to be discussed include the potential removal of interest that is paid to lenders when they hold money on reserve at the central bank. Separately, a note from Moody’s points to the UK real estate market as one of the most vulnerable in Europe to a sizeable correction with British banks the fifth most exposed to residential mortgages. However, UK lenders “would be able to weather the effects of a hypothetical sharp house price decline,” Moody’s added.
INTERNATIONAL
SWIFT advances testing of CBDC network
The SWIFT financial messaging system has completed an eight month trial of its CBDC network and will now begin more advanced testing. Acknowledging how Russia was cut off from the SWIFT system earlier this year, the company’s head of innovation Nick Kerigan said that could also happen in a new CBDC system, but doubted whether it would stop countries joining one. "Ultimately what most central banks are looking to do is to provide us with a CBDC for the people, the businesses and the organisations in their jurisdiction. So a solution that's fast and efficient and that gains access to as many other countries as possible would seem to be an attractive one."
Basel group sees no grounds to reform bank capital buffers
The Basel Committee of regulators on Wednesday said there was no immediate need to reform rules on banks' capital reserves considering lending continued during the pandemic without banks having to dip into these buffers, despite tougher rules on provisioning upfront for souring loans.
AUTOMOTIVE
Electric vehicle sales up in weak market
According to data from the Society of Motor Manufacturers and Traders, nearly 250,000 electric cars were sold in the nine months to September, marking year-on-year growth of 17%. This means Britons have now bought as million plug-in cars, indicating that electric vehicles have now joined the mainstream ahead of the proposed ban of the sale of cars with engines from 2030. Total new registrations for the period came in at 1.2m, down 8% on 2021. Overall, the market remains weak, said the SMMT’s Mike Hawes, “as supply chain issues continue to constrain model availability.”
AVIATION
Virgin Atlantic pulls out of Hong Kong
Virgin Atlantic is pulling out of Hong Kong after three decades of serving the route. The move comes after Covid restrictions and rising fuel prices made flights to the island unprofitable.
FINANCIAL SERVICES
Bank warned two years ago over pension investment risks
A senior adviser to the Bank of England warned two years ago about the risk to the gilt market from the investment approaches of UK pension funds. The Times reports that academic and member of the Bank’s financial policy committee, Anil Kashyap, warned of the risk of “contagion” and “multiplier effects” posed by investment methods including so-called liability driven investment (LDI) in November 2020. The Bank was forced to intervene last week when gilt values plunged after pension funds sold assets in a rush for cash. MPs this week asked The Pensions Regulator whether pension funds should have been forced to hold more collateral to prevent such fire sales. Meanwhile, the FT reports that investment giants including Goldman Sachs and Blackstone are circling UK pension funds looking to pick up cut-price illiquid holdings as funds rush to raise cash following last week’s market turmoil.
UK IPOs fall sharply as companies await stability
Only eight initial public offerings took place on the London Stock Exchange between July and September, a decline of 76% on the same period last year, according to new research. The eight IPOs raised just £565m – 86% down on last year’s performance. The figures put the UK stock market on course for its worst year in a decade and add to fears that the Square Mile is continuing to fall behind cities such as New York, Shanghai and even Amsterdam in attracting new listings.
Lord Sumption: Access to finance systems must be protected
Former justice of the Supreme Court Jonathan Sumption writes in the Times on how PayPal closed the accounts of the Free Speech Union (FSU) and the child welfare organisation UsforThem. Although the payments company has since reversed its decision following a backlash, Lord Sumption suggests regulations could be changed to prohibit financial services companies from discriminating against clients on a political or ideological basis.
RETAIL
Tesco reins in expectations as shoppers aim to save
Tesco has cautioned that its profits for this year are unlikely to be as big as some in the City had expected, with customers "watching every penny" as they try to make ends meet. The UK's largest supermarket chain revealed that operating profits in its retail division fell by 10% in the six months to the end of August. However, sales across the whole group excluding its fuel business increased by more than 3%. The retailer now expects annual underlying retail earnings of between £2.4bn and £2.5bn, which is at the lower end of previous guidance.
ECONOMY
Britain’s services sector comes to a standstill
The S&P Global UK Composite Purchasing Managers' Index fell to 49.1 in September from 49.6 in August, the lowest reading since January 2021. The PMI for the services sector fell to 50.0 from 50.9 in August, signifying stagnation but still better than the flash reading of 49.2. "Service sector businesses trimmed their growth expectations to the lowest seen for nearly two-and-a-half years in September, which survey respondents linked to concerns about falling disposable income and the unfavourable global economic outlook," said Tim Moore, economics director at S&P Global Market Intelligence.
Fitch threatens to downgrade UK's credit rating following mini-Budget
Fitch has threatened to downgrade the UK's credit rating in light of the Government’s spending plans. Fitch said the country's credit rating remained "AA-" but added there had been a "material change" which required it to update investors. The agency warned the "large and unfunded" package announced last month by Kwasi Kwarteng could result in "a significant increase in fiscal deficits over the medium term". It said the tax cuts revealed in the mini-Budget would deprive the Treasury of £27.7bn in 2023/24 and £31.3bn in 2024/25, leaving earlier spending commitments by the Government underfunded.
OTHER
World Bank dismisses report on fossil fuel funding
A report from a coalition of more than 50 NGOs called the Big Shift Global claim the World Bank has provided nearly $15bn of finance directly to fossil fuel projects since the Paris agreement was signed in 2015. The report comes after World Bank president, David Malpass, last month refused to affirm so-called settled climate science when pressed by a journalist. The Big Shift Global report, entitled Investing in Climate Disaster: World Bank Group Finance for Fossil Fuels, claims the World Bank was using its considerable leverage to push financial intermediaries to indirectly fund fossil fuel initiatives. However, the World Bank disputed the findings of the report and pointed to the $109bn it provided in climate finance from 2016 to 2021, and the $25bn funding a year on average promised to 2025.