Afternoon summary
Time for a recap…
There’s been more mayhem in the UK mortgage markets, as lenders withdraw offers or lift their rates, as high inflation drives up mortgage costs.
Santander became the latest major lender to temporarily pull its mortgage deals for new borrowers from sale.
Santander told mortgage brokers that it would stop accepting new applications for its “new business” residential and buy-to-let fixed and tracker rates at 7.30pm tonight, with deals not becoming available again until Wednesday.
The move shows that the turmoil in the home loans market shows no signs of abating, coming just days after HSBC temporarily withdrew its offers as borrowers raced to secure a deal.
NatWest announced sweeping increases to its mortgages rates.
It is putting up the rates on selected products for house purchases and remortgages, and some aimed at first-time buyers, by 20 basis points (0.2 percentage points).
But landlords face sharper increases, with two-year fixed deals for Buy to let purchases increasing by up to 157bps.
One mortgage broker said the move could be “the death knell for buy-to-let, at least with NatWest.”
The market has been destabilised by the UK’s higher-than-expected inflation, which is likely to lead to more interest rate increases.
Today, Bank of England policymaker Jonathan Haskel said that “embedded inflation would be worse” than the current high interest rates, which may head higher this year.
Haskel, a professor of economics at Imperial College’s business school, said the Bank of England recognised the pressure households and businesses were under, but warned persistently high inflation had wider economic costs as well.
“As policymakers, we are required to make difficult judgements.
“My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out.”
Wholesale borrowing costs have kept rising today, with the yield (or interest rate) on U two-year debt hitting 4.6% today, the highest since last autumn’s market panic.
That could push mortgages prices higher in coming days, as people warn that rising costs are already unaffordable:
The average rate on a new two-year fixed mortgage has continued to creep up and stood at 5.86% on Monday, according to the financial data provider Moneyfacts, compared with 5.26% at the start of May.
The financial markets indicate the Bank of England is certain to raise interest rates again when it meets later this month. A quarter-point rise is seen as a 75% chance, with a 25% possibility of a half-point hike, to 5%.
Elsewhere today…
Brexit, rising corporate taxes, growth concerns and political turmoil are causing US businesses to lose confidence in the UK as a place to invest, a new report shows.
Strikes by security guards at Heathrow Airport planned for June 24 and 25 have been postponed following an improved pay offer…..
….as storms have led to thousands of easyJet passengers flying to and from Gatwick have had their flights cancelled due to storms in the last 24 hours.
National Grid has asked a coal-fired power station in the east Midlands to warm up to cope with extra electricity demand for air conditioning as much of Britain swelters in the heat.
More than 2,000 workers are set to lose their jobs at delivery giant Tuffnells as the business fell into administration.
Mike Ashley’s Frasers Group has taken an 18.9% stake in the online electricals retailer AO World in a £75m deal involving buying out shares held by crisis-hit Odey Asset Management.
One factor pushing up UK mortgage rates is that UK government bonds are falling in value, pushing up borrowing costs (the yield on the bonds).
NEW
— Faisal Islam (@faisalislam) June 12, 2023
UK 2 year borrowing costs (gilt rate) has gone above US equivalent - pretty rare in past several years… a couple of times in late 22 and 21 - hasn’t really happened in a sustained fashion since end 2014… uk rates anticipated to be higher for longer, given sticky inflation. pic.twitter.com/9eKV0T2mYr
Those two-year gilts, now yielding 4.62% today, are used to price fixed-rate mortgages.
Updated
It appears that NatWest is temporarily scaling back its buy-to-let lending activities and redirecting its focus towards residential applications.
So says Anil Mistry, director and mortgage broker at RNR Mortgage Solutions, judging by the sharp rise in some buy-to-let mortgage rates announced today (see details).
Mistry adds:
It looks as if this is a strategic decision that aims to ensure that service levels remain unaffected during this period.
Brokers: Blow to buy-to-let market
UK mortgage brokers are concerned by NatWest’s mortgage rate increases, which they say will hurt the buy-to-let market in particular.
Lewis Shaw of Riverside Mortgages, says:
I’m no longer sure what level of reality I’m meant to be operating on. This could sound the death knell for buy-to-let, at least with NatWest.
Something has clearly spooked the money markets around 2pm today, and the 2-year gilt yield has shot above its peak following the mini-Budget in September. This is extremely worrying and I don’t know where it ends.
Riz Malik of R3 Mortgages warns that landlords face more ‘hardship and pain’:
The considerable rise in mortgage rates on buy-to-let properties underlines the flux in the market at present and introduces yet more hardship and pain for numerous landlords.
With each passing day, the financial calculations seem to make less sense. This a significant blow for the entire UK buy-to-let market.
Last autumn, we warned that amateur landlords face a financial cliff edge from rising borrowing costs….
Updated
NatWest to increase mortgage rates - full details
NatWest are also adjusting their mortgage rates, upwards, joining the rush by lenders to reprice their loans amid the turbulence in the market.
The bank says:
“Effective 13th June we’re making changes to our end dates and rate changes to our new and existing customer product ranges”
The changes include some large increases for buy-to-let loans, with products increasing by up to 1.57 percentage points – a really hefty rise, which will hit landlords looking to remortgage.
There are also smaller increases for other mortgage products.
This shows that the increase in wholesale borrowing costs today (see earlier post) is having a ripple impact on mortgages, on top of Bank of England policymaker Jonathan Haskel warning that further interest rate increases can’t be ruled out….
Here are the details of NatWest’s changes.
New Business Rate Changes
Purchase: Rate increase of 20bps on selected 2 year and 5 year deals.
Remortgage: Rate increase of 20bps on selected 2 year and 5 year deals.
First time buyer: Rate increase of 20bps on selected 2 year and 5 year deals.
Shared equity - purchase: Rate increase of 75bps on selected 2 and 5 year deals.
Buy to let – purchase: Rate increase of up to 157bps and 122bps on selected 2 and 5 year deals.
Buy to let – remortgage: Rate increase of up to 124bps and 114bps on selected 2 and 5 year deals.
Help to Buy shared equity - remortgage: Rate increase of 20bps on selected 2 and 5 year deals.
Green - purchase: Rate increase of up to 20bps on selected 2 and 5 year deals.
Green - remortgage: Rate increase of up to 20bps on selected 2 and 5 year deals.
Buy to Let green - purchase: Rate increase of up to 138bps and 115bps on selected 2 and 5 year deals.
Buy to Let green - remortgage: Rate increase of up to 107bps and 110bps on selected 2 and 5 year deals.
Existing Customer Rate Changes
Switcher: Rate increase of up to 35bps and 30bps on selected 2 and 5 year deals.
Switcher - tracker: Rate increase of up to 55bps on selected 2 year deals.
Buy to Let - switcher: Rate increase of up to 42bps and 26bps on selected 2 and 5 year deals.
NatWest's homeowner rate increases aren't enormous (this time) of up to 0.2%, but its buy-to-let ones are increasing up to 1.57%.
— George Nixon (@George_Nixon97) June 12, 2023
Cheapest 2-year buy-to-let fixes will now be over 6%.
Updated
The financial markets indicate the Bank of England is certain to raise interest rates again when it meets later this month.
A quarter-point rise, lifting Bank Rate from 4.5% to 4.75%, is seen as a 75% chance.
But the money markets indicate there’s a 25% possibility of a half-point hike, to 5%.
Updated
First summer Heathrow airport strike postponed after improved offer
Newsflash: The first summer strikes at Heathrow Airport, involving over 2,000 security officers, have been postponed.
Security officers at Terminal Three and Five as well as campus security workers were due to walk out on Saturday 24 June and Sunday 25 June.
But the Unite union has announced the industral action has been frozen, after Heathrow Airports Ltd (HAL) made an improved pay offer.
This follows “extensive talks” with Unite last week, says the union.
Unite regional co-ordinating officer Wayne King said:
“Following extensive negotiations last week a new offer was put forward by HAL. Members will now be balloted on the latest offer and they will decide whether or not it meets their expectations.”
As we reported earlier, Heathrow chief executive John Holland-Kaye had said this morning that strikes were unlikely to cause flight cancellations.
Updated
UK two-year gilt yields highest since mini-budget wobbles
Wholesale borrowing costs are continuing to rise today, putting more pressure on the mortgage market.
The yield, or interest rate, on UK two-year government bonds has risen to 4.6%, for the first time since last September, when the mini-budget chaos was rocking the markets.
These two-year gilts are used to price fixed-term mortgages, so this could lead more lenders to temporarily withdraw their deals and reprice them, higher….
Updated
Stock markets are making a cautiously upbeat start to the new week.
In New York, the Dow Jones industrial average has opened 63 points higher at 33,940 points, up 0.2%, with the tech-focused Nasdaq up 0.5%.
Investors are eyeing US inflation data due tomorrow, and then the next Federal Reserve interest rate decision on Wednesday.
Dow Jones +0.20%, Nasdaq +0.53%, S&P 500 +0.31%.$DJI $IXIC $SPX
— CN Wire (@Sino_Market) June 12, 2023
Britain’s FTSE 100 index is a little higher too, up 13 points or 0.17% at 7575 points.
Over in Madrid, ministers are maintaining tax cuts on basic foods ahead of a general election in July.
With elections looming next month, the Spanish government of Prime Minister Pedro Sanchez plans to extend tax breaks on staple foods until living costs ease further, Bloomberg reports.
Economy Minister Nadia Calvino told reporters Monday at the headquarters of Sanchez’s Socialist party in Madrid.
“We will maintain a lower value-added tax on basic food items for as long as we don’t reach adequate price levels.”
SPAIN ECONOMY MINISTER: SPAIN TO EXTEND TAX CUTS FOR FOOD ITEMS.
— Breaking Market News (@financialjuice) June 12, 2023
The government unveiled a multi-billion-euro package in December to ease the burden of surging prices by cutting VAT on some foods as well as electricity bills, and subsidizing some public transport.
The decision to extend the tax reduction on foods comes as Sanchez faces a tough fight to stay in power against a resurgent People’s Party, which opinion polls show could be on track to win the July 23 vote.
Last week, major food manufacturers in France pledged to lower prices on hundreds of products next month after pressure from the government.
‘This is just ruinous’: the Britons unable to afford their homes
One of those feeling the pinch from high UK inflation and mortgage rates is Clara, a 42-year-old secondary school teacher and mother of two teenagers.
She rents a three-bedroom house in Hemel Hempstead for £1,450 a month.
“The rent makes up 40% of mine and my partner’s joint take-home income,” she says, which puts it above the 30% threshold that the Affordable Housing Commission defines as affordable.
“Our rent just rose again a month ago, because the landlord’s mortgage payments increased.
“Rents here have always been quite high, but have gone up a lot in the area over the last 10 years. There is a very large and growing group of people here who earn too much to access any form of housing benefit, but not enough to pay rent and the bills.”
You are in queue position….Santander to stop accepting new applications for its “new business” residential and buy-to-let fixed and tracker rates at 7.30pm on Monday, with deals not becoming available again until Wednesday 14 June.
— Emma Fildes (@emmafildes) June 12, 2023
https://t.co/DRsvb0fAJr
JPMorgan Chase has announced a tentative settlement in a legal claim brought by a woman who said that the US banking giant profited from sexual abuse that she and others suffered at the hands of disgraced financier Jeffrey Epstein.
“The parties believe this settlement is in the best interests of all parties, especially the survivors who were the victims of Epstein’s terrible abuse,” JPMorgan said in a statement.
The proposed deal could begin to shutdown weeks of embarrassing leaks about the extensive relationship that the bank had with Epstein, where the convicted sex offender was a client from 1998 to 2013 – seven years after he was first accused of soliciting a minor.
Back on mortgages….Nicholas Mendes, mortgage technical manager at broker John Charcol, said money market swap rates “have continued to see a steady increase, with no sign of falling, which is pushing lenders to continue to reprice”.
He added:
“Last week Halifax and HSBC increased their fixed rates, with rates near or over 5% depending on the LTV [loan-to-value].
The pressure is on for homeowners to ensure they are quick to secure a rate if they are approaching the end of the their fixed rate or in the midst of a purchase application.”
2,000 jobs lost as delivery giant Tuffnells falls into administration
More than 2,000 workers are set to lose their jobs at delivery giant Tuffnells as the business fell into administration.
Administrators are set to keep just 128 of the business’s staff after being appointed on Monday, PA Media report.
The Sheffield-headquartered company has 33 depots across the UK, and handles logistics to more than 160 destinations around the world.
The business has been under pressure since it was taken into independent ownership in 2020, hit by Covid-19 pressures, rising costs and increased competition, administrators at Interpath said.
#Breaking More than 2,000 staff will be made redundant after Sheffield-headquartered delivery giant Tuffnells fell into administration, its joint administrators said pic.twitter.com/31CMsqnJJV
— PA Media (@PA) June 12, 2023
Rick Harrison, managing director at Interpath Advisory, said:
“Unfortunately, the highly competitive nature of the UK parcel delivery market, coupled with significant inflation across the company’s fixed-cost base in recent times, has resulted in the company experiencing intense pressure on cashflow.
“Today’s news will be particularly devastating for Tuffnells’ 2,200 dedicated employees.
“Regrettably, with deliveries suspended and with no prospect of them resuming in the immediate term, we have had to make the majority of staff redundant.
“Our utmost priority will be to provide all those impacted with every support they need in making claims to the Redundancy Payments Office and minimising disruption to customers.
Updated
BBC: Ofcom data downloaded in cyber attack
Media watchdog Ofcom has confirmed that it is a victim of a cyber-attack by hackers linked to a notorious Russian ransomware group, the BBC reports.
Confidential data about some companies regulated by Ofcom, and personal information from 412 employees was downloaded during the mass hack.
A number of firms, including British Airways, the BBC and Boots, have been affected by the software breach.
Ofcom said it had “swiftly” alerted all the companies that it regulates, and also referred the matter to the data and privacy watchdog, the Information Commissioners Office (ICO).
Average mortgage rates rise again
Mortgage rates are continuing to rise today, industry data snows.
The Daily Mail reports that average mortgage rates are closing in on 6% for a two-year fixed deal today - while the number of products available has fallen again.
They say:
The average rate on a new two-year was today at 5.86 per cent - up from 5.83 per cent last Friday, 5.72 per cent last Monday and 5.33 per cent a month ago.
Meanwhile a five-year deal was at an average of 5.51 per cent today - up from 5.48 per cent yesterday, 5.41 per cent last Monday and 5.03 per cent a month ago.
The data provided by financial experts at Moneyfacts also revealed the number of mortgage products available stood at 4,952 today, falling from 5,056 last Friday - although up from 4,686 last Monday. However it was down from 5,300 a month ago.
Updated
Mortgage broker Justin Moy says there is still time to get a Santander mortgage on current rates, if you’re quick….
Santander are pulling rates for new clients as of 7.30 this evening - still time to organise a mortgage application and take a current deal, we are open until 7.30 tonight to help. @EssexMortgages https://t.co/4uiusV7C3W
— Justin Moy | Mortgage Broker (@Moysie01) June 12, 2023
On Santander temporarily pulling its mortgage deals for new borrowers off sale, a spokesperson says:
“We continually review our products in light of changing market conditions.
As we prepare for a relaunch of a full range of mortgage products from Wednesday morning, we will not be accepting new applications via intermediary and online channels temporarily from this evening.
Our product transfer range remains fully available and customers who have already applied will not be impacted.”
The Bank of England looks certain to raise rates by another quarter of a percent, from 4.5% to 4.75%, when it meets next week.
So says Rupert Thompson, chief economist at Kingswood, who predicts that a further couple of hikes likely to follow over subsequent months.
Thompson says:
The recent ratcheting up of rate expectations has fed through to mortgages and much of the pain from higher rates has still to be felt on the housing market.
Still, the surprise if anything so far has been how resilient house prices have been. The Nationwide index shows prices down only 2.5% from their peak last summer and the Halifax index 4.3% lower. To put this in perspective, according to both indices, this still leaves prices up 20% or so on their levels at the start of 2020.
Santander temporarily stops new-business fixed and tracker mortgage deals
Santander is the latest major bank to announce it is temporarily pulling its mortgage deals for new borrowers off sale as the turmoil in the home loans market shows no signs of abating.
My colleague Rupert Jones reports:
Days after HSBC temporarily pulled down the shutters, Santander told mortgage brokers that it would stop accepting new applications for its “new business” residential and buy-to-let fixed and tracker rates at 7.30pm on Monday, with deals not becoming available again until Wednesday 14 June.
The move applies to applications made via mortgage brokers and online, though Santander said new deals for existing customers remained available, and that those people who applied before 7.30pm would not be affected.
But there is more positive news for borrowers, Rupert adds:
TSB will on Tuesday reduce the cost of some of its new deals by up to 0.4 percentage points.
HSBC’s UK boss has insisted the bank is “trying to limit the pain” from rising mortgage prices.
Ian Stuart told Sky News that 300,000 of HSBC’s customers are coming off fixed rate deals this year, so will be hit by the increase in rates.
Stuart says:
“If you took a mortgage maybe two years ago or five years ago, myself included, you will come off a mortgage rate of around 1.5% and your new mortgage is going to cost something closer to 5%.
“This is not a subject to be flippant on. This is a very, very important topic in UK society today.”
Stuart criticised some of the media reporting of HSBC’s decision to temporarily stop selling “new business” residential and buy-to-let products to mortgage brokers late last week.
He says HSBC felt a significant spike in demand for mortgages last Thursday, so it paused “for a couple of hours”, with mortgages now available again.
Stuart says:
I apologise to the brokers. I’m sorry if we let you down. We could not cope with that demand.
But I’m not going to apologise for trying to look after our loyal customers in what I think is a very difficult sitution with rates continuing to increase.
When asked if he was chasing market share for mortgages, Stuart pointed out that quite a lot of market headed HSBC’s way last week anyway.
Updated
Warning that UK mortgage rates are set to rise further
Borrowers are being warned that mortgage rates are set to rise further, as turbulence continues to hit the market.
David Hollingworth, of broker London & Country, told Radio 4’s Today programme that the pace of change in rates has been “pretty relentless”. Lenders have been removing products from the market and replacing them with new offerings at typically higher rates.
Hollingworth explained that a couple of weeks ago, the best rates for five-year fixed mortgages were around 4%. Today, a couple of deals are available around 4.5% but most are at 4.75%.
Hollingworth predicts:
I think this week is going to bring more of the same.
Hollingworth explains that mortgage rates are rising because bank borrowing costs are increasing (as the financial markets expect UK interest rates to kee rising).
But, lenders are also finding that the market is shifting around them, as rivals push up their own rates.
Hollingworth said:
Therefore there’s a tidal wave of business coming their way…..they need to protect service, and borrowers of course are rushing to grab a rate now.
We’re back to that phase where you can’t hand around if you’re looking at a fixed rate.
Hollingworth is also hopeful that rates will ‘find a level’, meaning things start to calm down in the near future.”
Thousands of holidaymakers hit by easyJet flight cancellations
More than 15,000 easyJet passengers have been hit by flight cancellations due to severe weather, PA Media reports.
The airline axed 54 flights scheduled to take off or depart from Gatwick Airport on Sunday because of storms, with a further 55 grounded on Monday.
Gatwick warned that more storms are expected on Monday.
An easyJet spokeswoman said:
“Thunderstorms in the Gatwick area which restricted the number of arrivals and departures on Sunday unfortunately resulted in disruption at London Gatwick Airport, including some diversions and cancellations which is having a knock-on impact this morning as a number of aircraft are out of position.
“We are doing all possible to minimise the impact on our customers, providing those on cancelled flights with options to rebook or receive a refund as well as hotel accommodation and meals where required.
“The safety and wellbeing of customers and crew is easyJet’s highest priority and, while this is outside of our control, we would like to apologise to customers for the inconvenience caused.”
Hi Dean, Air Traffic Control suspended flights while a storm passed over the South East, causing delays. We apologise for any issues this has caused. Please contact Easyjet for information about any delays or cancellations. Thanks, EB
— London Gatwick LGW (@Gatwick_Airport) June 12, 2023
US business confidence in the UK slides
Brexit, rising corporate taxes, growth concerns and political turmoil are causing US businesses to lose confidence in the UK as a place to invest, a new report shows.
The latest Transatlantic Confidence Index has found that US companies’ confidence in the UK business environment dropped for a third year in a row.
The survey, from BritishAmerican Business, the transatlantic trade association, and management consultancy Bain & Company, found:
…A continuing toll from Brexit on American business sentiment towards the UK is aggravated by US firms’ anxieties over political stability, economic growth prospects and corporate tax.
On the Index’s 1 to 10 scale, the average business confidence rating for the UK dropped by almost a full point, to 6.5 for 2023 – which is nearly double the half-point decline to 7.3 in 2022’s results.
Following the signing of the Windsor Framework agreement between the UK and EU in March, survey respondents acknowledged improvements in the UK-EU relationship. Confidence in this measure rose to 5.6 this year, up from 5.1 in 2021.
Jonathan Frick, partner at Bain & Company in London, said the transatlantic economic relationship and wider UK-US partnership are “crucial anchors for the security and prosperity of both nations”, adding:
“While it’s heartening to see the continuing vitality of the relationship between Britain and America, our findings also show important challenges, on both sides of the Atlantic, but especially in respect of US investors’ confidence in the UK.
These are a call to action for both governments as well as businesses in the two countries to work together proactively to further strengthen our transatlantic ties.”
Today, BAB and @BainandCompany launched the 3rd edition of the Transatlantic Confidence Index, which found that the UK-US trade and investment relationship remains strong, despite a drop in confidence by US investors in the UK.
— BritishAmerican Business (@BritAmBusiness) June 12, 2023
Read the report here: https://t.co/nUZHFj0iCP
Updated
Pound hits one-month high
In the financial markets, the pound has hit a one-month high against the US dollar today.
Sterling has been lifted by hopes that Britain’s economy will avoid a recession, and expectations that interest rates will keep rising for longer in the UK than the US.
The pound hit $1.2595 this morning, the highest since 11 May, taking some support from Jonathan Haskel’s warning that future rate rises can’t be ruled out.
The CBI has revised up its growth forecasts for the UK this year, from a 0.4% decline to show growth of 0.4% this year.
But, the CBI adds that 2023 will be challenging for households and businesses. For the first time since the recession of the early 1980s, it expects real household incomes – a measure of living standards – to fall for two successive years.
2023 will remain challenging for the CBI too, despite the embattled lobby group winning a crucial confidence vote last week.
Bloomberg reports that the CBI has been abandoned by major sponsors of its annual conference, saying:
Recruitment specialist Hays Plc sponsored the conference for about a decade but has since quit the CBI and won’t take part this year, a spokesperson said. The other leading sponsor, Accenture Plc, terminated its membership in April.
ICYMI. https://t.co/yEzGlGjqQw
— Julian Harris (@Hariboconomics) June 12, 2023
Updated
Sunak defends role over Johnson resignation honours
Rishi Sunak may have wanted to talk tech today, as he spoke warmly of the entreprenurial attitude in California today, and the UK’s pioneering role in the Industrial Revolution.
Asked about how to grow UK tech, Sunak says:
Fundamentally it requires entrepreneurs to just keep going, to be not content with building the £100 million business and then the £1 billion business but just to keep growing.
“That, I found in California, is very much the attitude, the sky is the limit. Everyone thinks they can create a 100 billion-dollar company and actually changing that culture is tough for government to do.”
He also cited his push to make everyone learn maths until the age of 18 (despite criticism of the plan), saying the UK is currently an outlier on this issue.
But he couldn’t avoid the current political turmoil.
He was asked at London Tech Week about former PM Boris Johnson’s resignation honours list, published hours before Johnson stropped out of parliament after receiving the privileges committee findings into the Partygate scandal.
Sunak says that he refused a request from his predecessor to intervene, saying:
“Boris Johnson asked me to do something that I wasn’t prepared to do, because I didn’t think it was right.
That request was either to overrule the House of Lords Appointments Commission (which did not support eight of Johnson’s nominations for peerages) or to make promises to people, Sunak says, adding:
“I wasn’t prepared to do that because I didn’t think it was right, and if people don’t like that, then tough.”
“Boris Johnson asked me to do something I didn’t think was right. (Overruling HOLAC). If people don’t like it, then tough”. Sunak at London Tech Week
— alan rusbridger (@arusbridger) June 12, 2023
This wins some clapping, with Sunak adding:
When I got this job, I said I was going to do things differently because I wanted to change politics, and that’s what I’m doing.
Our Politics Live blog has more details:
Updated
Asked about the opportunities of AI, Sunak suggests it could allow a ‘personalised tutor’ for students, and also reduce teachers’ workload, and help with marking and lesson planning.
Sunak cites Babbage letter as inspiration for tech leadership....
Rishi Sunak then tells an anecdote about how he recently saw a letter from Charles Babbage, the inventor, from the 1830s thanking the then-chancellor for funding his Difference Engine.
That letter, in a British Library collection, showed that the government broke with convention by funding this cutting-edge idea, Sunak says.
That was a decisive moment. The British government broke with the conventions of the time, and for a decade backed this breakthrough technology.
He’s determined that future researchers in 200 years will find evidence that the current government, and the tech sector, met the current opportunities with the same “courage, vision and determination”.
Babbage’s largest project, the Difference Engine no. 1, was a machine intended to save the government money by preventing critical errors in tables calculated and copied by hand. Effectively it would have worked as a calculator.
However, the story doesn’t have a happy ending, as the Whipple Museum reminds us.
Funding was officially cut off in 1842 at which time he [Babbage] had spent over £17,000, ten times as much as originally intended.
Somewhat embarrassingly, the British government purchased a difference engine based on Babbage’s original design made by Swedes Georg and Edvard Schuetz, which they demonstrated at the World’s Fair in 1855.
Difference Engine no. 1 remained unfinished in Babbage’s lifetime, as he moved onto an even more challenging idea, the Analytical Engine, which actually included its own memory.
Sunak then announces the launch of HSBC Innovation Banking, following the rescue of tech-focused lender Silicon Valley Bank earlier this year.
This new unit will focus on banking services to the startup, investor, and wider tech community.
Today, we’re so excited to announce our new brand, HSBC Innovation Banking - the new name for @SVB_UK.#HSBC#HSBCInnovationBanking#innovation pic.twitter.com/1EXAkrvqVV
— HSBC Innovation Banking (@HSBCInnovation) June 12, 2023
On AI, Sunak then pledges to “lead” on the issue at home, where the government is working with artificial intelligence firms….
We'll lead on AI at home🇬🇧@DeepMind, @OpenAI and @AnthropicAI will give us early access to their models to help us understand any potential risks.
— Rishi Sunak (@RishiSunak) June 12, 2023
And we’re launching two new fellowships to enhance machine learning in drugs and food design, and AI scientist training.
…and abroad, by hosting a global AI summit later this year (which he compares to the COP summits on climate change).
We will lead on AI overseas🌍
— Rishi Sunak (@RishiSunak) June 12, 2023
I want to make the UK not just the intellectual home, but the geographical home of global AI safety regulation.
That’s why the UK will host the first ever global summit on AI safety later this year.
Updated
Sunak speaks at London Tech Week
Prime minister Rishi Sunak is speaking at London Tech Week now.
Sunak says we are at at “moment of huge opportunity”, with the “technonic plates of technology” are shifting (he cites AI, quantum computing, synthetic biology and semiconductors”.
We must act, and act quickly, if we want not only to retain our position as one of the world’s tech capitals, but to go even further and make this the best place in the world to start, grow and invest in tech businesses.
Sunak says he feels a sense of urgency about this, as it can help grow the economy.
He then suggests that artificial intelligence could surpass industrial revolution in the speed and breadth of the changes it will bring, as he pitches the UK as the home of artificial intelligence (AI) regulation (see earlier post).
Rishi Sunak says AI and associated tech may lead to economic changes that could “surpass the Industrial Revolution in speed and breadth”. Quite a statement. pic.twitter.com/p0VwnusLSw
— Robert Peston (@Peston) June 12, 2023
He then pitches the UK’s “leadership” as an asset when trying to attract tech investment (after a weekend where his government came under pressure following the resignation of Boris Johnson, and two other MPs).
Sunak says:
Do you trust the people in charge to really get what you’re trying to do.
With this government and with me as your prime minister, you can.
Updated
In the travel sector, the boss of Heathrow has pledged that strikes by security guards at Heathrow are unlikely to cause flight cancellations.
More than 2,000 members of the Unite union will walk out for 31 days from June 24 in a dispute over pay.
For the first time, security officers based at Terminal 3 will join their colleagues from Terminal 5 and campus security who have already taken industrial action.
Heathrow chief executive John Holland-Kaye said that having kept running through earlier strikes over Easter, the airport is well-prepared.
“We have delivered excellent service to passengers, with no cancellations, over eight days of strikes on the busiest days in May, and do not anticipate cancellations as a result of strikes during the summer holiday getaway.”
Last week, Mr Holland-Kaye urged Unite to put the airport’s latest proposal of a 10% pay increase and £1,150 lump sum to a vote of its members.
He claimed:
“We know that most of our colleagues would accept the offer that we have on the table”.
PM Rishi Sunak due to make a speech at London tech week shortly 👇🏻 pic.twitter.com/1HypLFsnGb
— Rob Powell (@robpowellnews) June 12, 2023
Sunak to pitch UK as ‘geographical home’ of AI regulation
Rishi Sunak will tell technology leaders he wants to make the UK both the intellectual and the geographical home of artificial intelligence (AI) regulation.
In a speech to open London Tech Week on Monday, the Prime Minister is set to say that the “extraordinary” possibility of AI advances must be carried out “safely” as he positions Britain as a potential home of a global regulator.
It comes after the Conservative Party leader used a trip to the US last week to announce that the UK will host the first global summit on AI safety.
The Prime Minister, in pre-briefed comments ahead of his appearance at the 10th London Tech Week, will say:
“Already we’ve seen AI help the paralysed to walk and discover superbug-killing antibiotics — and that’s just the beginning.
“The possibilities are extraordinary. But we must — and we will — do it safely.
“I want to make the UK not just the intellectual home, but the geographical home of global AI safety regulation.”
Interest in AI across politics has soared (as in the financial markets), as fears grow that the technology’s rapid advancement could spin out of control.
The UK government hope to persuade other countries to use the UK as a base for a new global AI regulator, but experts have warned that success is unlikely….
ING: No UK interest rate cuts until 224
Sticky UK wage growth means no rate cuts for the Bank of England until this time next year, analysts at ING have predicted this morning.
In a new research note, ING say that last month’s ‘shock inflation reading’ of 8.7% sent Bank of England expectations soaring.
ING believe that the UK could be closer to the peak in interest rates than markets are assuming [the City is anticipating four more rate hikes from 4.5% to 5.5%].
They say:
A 25bp rate hike in June could easily be the last – if not, in August – and it will depend on how many more CPI [inflation] surprises we get through the summer.
But, the “slow downtrend in wage growth” suggests that rate cuts are unlikely to be a story for this year.
ING adds:
We’ve pencilled in the first cut for around this time next year, though eventually, we do expect a series of rate cuts that take Bank Rate down to the 3% area – some distance further than markets are currently pricing.
Updated
Homeowners are being hit with a “Tory mortgage penalty” of £7,000 per year, with interest rates triple what they were two years ago, the Labour party have warned.
Analysis by Labour suggests the average homeowner is forking out an extra £150 every week since what officials called the “kamikaze mini-Budget” in the autumn.
It means the average household with a mortgage now pays £223 a week in mortgage interest payments – an increase of £7,000 per year, party officials said.
Labour said those with a 75% loan to value (LTV) ratio mortgage faced average interest rates of up to 4.63% in April.
The same deal had an interest rate of 1.49% in April 2021, said the party – a third of what it increased to 24 months later.
Pat McFadden, shadow chief secretary to the Treasury, has blamed what he called the “reckless economic gamble” taken by the Conservatives during September’s mini-Budget.
“This Tory mortgage penalty has increased the cost of home ownership by thousands of pounds a year, causing huge worry for families, while putting the prospect of owning a home further out of reach for many others.
“Rishi Sunak might want to forget the economic misery the Conservatives have inflicted, but the public can’t forget about it as their outgoings soar.
“Labour will make our economy stronger and more secure, and stop working people paying the price for 13 years of Tory failure.”
KPMG: Stickier inflation means higher interest rates
Economists at KPMG are also warning that UK interest rates will continue to rise this year, due to stubborn inflation.
Their latest economic forecasts, released this morning, show a brighter growth picture -but high inflation for longer than hoped.
KPMG say:
Given the latest surveys, we no longer expect a recession in the UK, but growth is forecast to remain sluggish by historical standards.
Inflation is on the way down, but the pace of moderation is slower than we previously thought. This will likely necessitate further interest rate increases and more pain to come for borrowers.
The upside revision to our forecast means no plain sailing. Risks remain skewed to the downside, with ongoing fragilities potentially yet to be fully uncovered.
Yael Selfin, chief economist at KPMG UK, said:
“We’ve seen a slightly stronger momentum for the UK economy but risks are still elevated on the downside. A stickier inflation will see monetary policy tightening even further, increasing the risk of unwelcome side effects among other potential headwinds.”
Introduction: Mortgage fears and London Tech Week
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK borrowers face further interest rate hikes this year as the fight against inflation continues.
A Bank of England policymaker is warning this morning that the UK central bank may need to make “further increases” to borrowing costs as it tries to ease the cost of living crisis.
Jonathan Haskel, a member of the Bank’s Monetary Policy Committee, suggests that more than one increase in interest rates may be needed.
Writing in The Scotsman today, Haskel says the BoE mustn’t allow inflation to become ‘embedded’ in the economy, saying:
We are monitoring indicators of inflation momentum and persistence closely.
My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out.
As difficult as our current circumstances are, embedded inflation would be worse.
Expectations of higher interest rates has caused turbulence in the mortgage market in recent weeks.
Ian Stuart, CEO of HSBC UK Bank, told Radio 4’s Today programme that inflation is looking sticky, and probably won’t fall “quite as fast” as hoped.
That means that borrowing costs are unlikely to start falling again soon.
Stuart explains:
Well, I don’t have a crystal ball. But…. inflation is not falling as quickly as a lot of people have predicted.
So as long as that is the case, then our house view is that rates will probably increase a little bit more and will probably stay a little bit higher for longer.
Bank of England base rate is currently 4.5%, the highest level since 2008.
The money markets are anticipating that rates could hit 5.5% by the end of the year, meaning people who must remortgage their loans face higher repayment costs.
Stuart says:
So, not the mortgage news we’d be looking for.
He doesn’t believe rates will fall back to 1%, and warns that rates won’t start to fall until inflation is much lower than it is today (it was 8.7% in April).
Mortgage rates in UK have jumped sharply in recent weeks due to sticky inflation.The market expects BOE to increase the rate to 5-5.5%. The current rate is 4.5%. How far mortgage rate will go up if the benchmark rate has to increase to 5.5%? Ticking timebomb in UK property market pic.twitter.com/Qb4GgdGtaw
— Winston (@WKyaw7) June 5, 2023
Stuart explained that HSBC was forced to ‘put a pause on business’ coming in from brokers last Thursday, due to a supply and demand issue as people tried to secure mortgages.
The Nationwide Building Society raised its mortgage rates last week, adding to the pressure on the market.
New analysis suggests that around 2.6 million households with a mortgage could have to pay thousands of pounds more in repayments next year.
The Times reports today:
City figures said the mortgage market was going through a “complete reset” and that only a third of borrowers who are on cheap fixed-term deals had come off them so far.
Analysis by Capital Economics found that a third of such households, equivalent to 3.2 million, are paying interest rates of 3 per cent or more. By the end of next year that will have risen to 5.8 million as the impact of higher interest rates passes through to the market.
Higher rate snowball effect - “a 3rd of mortgaged households, equivalent to 3.2m, are paying interest rates of 3% or more. By the end of next year that will have risen to 5.8m as the impact of higher interest rates passes through to the mkt” @CapEconUK @George_Nixon97 @thetimes pic.twitter.com/RTJCcEkWFb
— Emma Fildes (@emmafildes) June 12, 2023
Also coming up today
London’s Queen Elizabeth II Centre is hosting London Tech Week, the 10th gathering of the UK’s largest technology event.
PM Rishi Sunak, chancellor Jeremy Hunt and Secretary of State for Science, Innovation and Technology Chloe Smith are attending, as Britain pitches itself as a tech superpower and “the best place in the world to invest”.
Asia Pacific (APAC) investors with over £100bn of funds will be there, the government reports, and could put money into fintech, clean tech, life sciences and Artificial Intelligence firms.
An ‘elevator pitch’ will be run at the London Eye, where 25 tech firms will have 30 minutes to pitch their latest innovations to investors before their pods circle back to the ground…..
The agenda
Morning: London Tech Week panel discussion with Secretary of State for Science, Innovation and Technology Chloe Smith chancellor Jeremy Hunt, and HSBC and SVB UK.
9am BST: Prime minister Rishi Sunak gives keynote address to open London Tech Week
9am BST: China’s new yuan loan for May
1pm BST: India’s industrial production data for April
3pm BST: Bank of England policymaker Catherine Mann gives a webinar
4pm BST: US consumer inflation expectations data
Updated
