Aurelia Butler

LONDON (Reuters) -The Bank of England wants to scrap a rule that mortgage borrowers must be able to afford an interest rate increase of 3 percentage points, it said on Monday, a move lenders said could help homebuyers.The British central bank said its requirement for most mortgages to be no more than 4.5 times a borrower’s income, plus separate affordability rules from the Financial Conduct Authority, were sufficient.The BoE will consult in the first half of next year on the change, which it said did not represent a loosening of standards and would preserve financial stability “in a simpler, more predictable and more proportionate way”. The current rule came into force in 2014 during a shake-up of lending regulation after the global financial crisis. Since then, interest rates have stayed close to record lows, and although financial markets expect the BoE to start raising rates soon, they do not see borrowing costs getting anywhere close to levels seen before the financial crisis.The BoE said a lower long-term outlook for interest rates did not automatically mean smaller risks for borrowers, as it partly reflected weaker prospects for incomes and meant there was less scope for borrowing costs to fall in a downturn.But it said its loan-to-income rule was in practice more stringent than the interest rate rise affordability check.Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, said the change would help some first-time buyers and those in pricy parts of southeast England.”(They) can clearly afford a mortgage but are hindered by the requirement to test that they could still pay their mortgage if rates were in the region of 6% plus,” he said.BIGGER RISK BUFFERSThe BoE also said it would increase the counter-cyclical capital buffer (CCyB) that banks must hold to smooth lending over the course of the economic cycle, to 1% of risk-weighted assets from zero currently, effective from the end of next year. If the economy grows as the BoE expects, then in the second quarter of 2022 it expects to raise the CCyB to 2%, effective from Q2 2023. The BoE cut the CCyB to zero at the start of the COVID-19 pandemic to boost lending.The increase to 1% implies British banks must hold an extra 11 billion pounds ($14.6 billion) of capital. Lenders already hold more capital than the regulatory minimum, however, so will not need to raise more, even if the CCyB rises to 2%.Britain’s top eight banks, including HSBC, Barclays (LON:BARC), Lloyds (LON:LLOY) and NatWest – with Virgin Money (LON:VM) included for the first time – all passed the BoE’s stress test.BoE Deputy Governor Sam Woods said it was “business as usual” for bank dividends, meaning no return to last year’s temporary suspension due to the pandemic.The central bank acknowledged risks to the British economy’s recovery posed by the Omicron variant of the coronavirus.”There are near-term pressures on supply and inflation, and there could be a greater impact from COVID on activity, especially given uncertainties about whether new variants of the virus reduce vaccine efficacy,” the BoE said.But Governor Andrew Bailey told a news conference he did not think Omicron’s emergence risked fresh market turmoil like that seen at the pandemic’s start.”I don’t think that we are in a situation where there is … stress around the corner in terms of markets,” he said.The BoE’s separate Monetary Policy Committee is due to announce its latest interest rate decision on Thursday. Investors have rowed back bets on a rate hike this month because of the uncertainty posed by Omicron.($1 = 0.7561 pounds) More

Good evening,There seems little let-up in the supply chain pressures stifling global business.We report today on how the cost of flying cargo around the world has reached record levels, as companies try and meet soaring demand in the crucial pre-Christmas period. Container shortages and congestion at ports are still intense. In Los Angeles — the destination for around 40 per cent of Chinese imports — about 75 container ships are waiting to dock, according to logistics group Kuehne+Nagel, with some stuck for weeks. This has left many businesses with no choice but to shift to air freight, leading to a doubling in prices on key routes connecting Chinese manufacturers to US and European consumers. The grounding during the pandemic of passenger planes, which in normal times carry half the world’s air cargo, has added to the problem.The $95bn global toy market is one obvious casualty of the supply chain squeeze, making western companies rethink their reliance on China, which accounts for 80 per cent of global toy exports. With jumps in the costs of energy and raw materials as well as shipping, the country is no longer as cheap a manufacturing base as it once was. Lego, the world’s biggest toy maker, last week announced an investment of $1bn in a new factory in Vietnam, while France is having some success building up a domestic production base.But apart from “knee-jerk onshoring”, there is another way to ease the squeeze, reports Alan Beattie in today’s Trade Secrets newsletter: get a better idea of what’s going on. This year’s disruptions have revealed big holes in data on who is making what, where and when, and how it is getting transported, he writes. UK logistics company Unipart for example is building a machine-learning product to try and create more agile supply chains. “You can start teaching the system to use data about container usage and locations, port congestion, vehicle movements, driver shortages and raw materials,” says boss John Neill. “You then have far more information to manage and plan delivery lead times than before.” The only snag, Alan explains, is that some data — such as the routes of Chinese ships — are becoming harder, rather than easier, to plot. (You can sign up for the excellent Trade Secrets newsletter here.)Latest newsOpec has raised its forecast for world oil demand for the first quarter of 2022 and played down the impact of the Omicron variant (Reuters)NHS leaders doubt target for Covid boosters in England will be metGhana says it will charge airlines $3,500 per unvaccinated passenger flown into the countryFor up-to-the-minute news updates, visit our live blog. And if you want to listen to the latest headlines in under three minutes, listen to our Top Stories Today audio digestNeed to know: the economyIt’s a big week for central banks and global monetary policy. G7 finance ministers met today as the UK’s year-long presidency came to an end; the US Federal Reserve meets tomorrow and on Wednesday to discuss its asset-purchase programme and publish new economic and interest rate projections; the European Central Bank is likely to announce a decision on its stimulus programme on Thursday — the same day as the Bank of England’s decision on interest rates. Unhedged author Rob Armstrong ponders whether markets are right to remain so optimistic in the face of imminent rate rises from the Fed. Spoiler alert: he’s still gloomy. Meanwhile, consumer spending on debit and credit cards in the US surged last month, even as Americans expressed worries about the state of the economy. Latest for the UK and EuropeEuropean gas futures jumped 10 per cent this morning after new German foreign minister Annalena Baerbock said the Nord Stream 2 pipeline, which would double the capacity of the existing Russia to Europe route, did not comply with EU law.Turkey’s monetary policy drama intensified as the country’s currency hit a new low, passing the 14 to the dollar threshold, with another interest rate cut expected on Thursday.Global latestHigher oil prices and the end of pandemic restrictions have led Saudi Arabia to forecast a budget surplus of $24bn net year, its first since oil prices crashed in 2014. The economy is forecast to grow 7.4 per cent after an expansion of 2.9 per cent this year.Investors do not have a crystal ball. But they do have the yield curve. And right now in the US, it’s behaving strangely. “You don’t normally see this kind of flattening so early in the recovery,” says one bond manager. If you want to know what this suggests for the future of the US economy and understand what the yield curve actually is, read this new explainer. You can even create some music, using the interactive tool.Japanese business — at least ahead of the arrival of Omicron — is in a confident mood, according to the Bank of Japan’s quarterly Tankan survey. Sentiment among manufacturers is flat but has leapt in the services industry since the lifting of the Covid-19 state of emergency at the end of September.Need to know: businessSir Richard Branson’s Virgin group gave Virgin Atlantic a £400m cash injection, as new coronavirus fears dented confidence in the travel sector. Virgin and other UK airlines called for “disproportionate” passenger testing rules to be scrapped and demanded a new package of government support to prevent “permanent scarring” of the industry. Flight and hotel bookings across the world have taken a serious hit since the arrival of the Omicron variant. Europe’s ski resorts had hoped this winter would banish memories of the Covid “superspreader” events of spring 2020, but many fear the season could be dented by Omicron. Skiing is responsible for about half of Switzerland’s tourism revenues, accounting for 2.5 per cent of GDP. In Austria, it is worth up to 4 per cent. Pub chain JD Wetherspoon has warned of the damage from a “lockdown by stealth” after Westminster last week reintroduced certain restrictions to try and halt the spread of Omicron. The World of WorkNearly two-thirds of US companies now plan to make vaccines compulsory for their workers. In Europe, where vaccination rates are higher and mandates focus on individuals rather than businesses, the number is lower. President Joe Biden’s plan to make all US businesses with 100 or more employees get vaccinated, or get weekly tests, is currently held up in the courts, but it is still having an influence on companies’ policies, according to the research from the Manpower Group.The algorithms used by gig economy companies to deploy, monitor and discipline their staff are being questioned by frustrated workers across Europe, writes tech correspondent Madhumita Murgia. One Uber driver commented: “The lower classes, gig workers, self-employed, we are the first to be affected because we are the most vulnerable. But what’s next? What if AI decides if an ambulance is sent to your house or not, would you feel safe without speaking with a human operator? This affects all our lives.”Get the latest worldwide picture with our vaccine trackerAnd finally . . . Turns out that not even the North Pole is immune from labour shortages. The FT’s Lex column looks at the surging demand for Santas.Santa at a shopping mall in Johannesburg. Readers thinking of switching out of banking or broking should bear in mind that the rewards may be heart-warming rather than wallet-filling © AP More

Turkey’s lira fell to a record low, breaching 14 to the dollar, as investors braced themselves for President Recep Tayyip Erdogan pushing on with another interest rate cut later this week despite intense inflation.The currency, which has fallen about 40 per cent since the central bank embarked on a rate-cutting cycle under Erdogan’s orders in September, on Monday crossed a threshold that authorities had previously appeared reluctant to tolerate.The lira tumbled as much as 5 per cent to 14.62 against the dollar in London dealings on Monday, before recovering to about TL14. The currency started 2021 at roughly TL7. The renewed selling came after Erdogan’s increasingly unorthodox approach to running Turkey’s $795bn economy led the rating agency S&P to downgrade its outlook on the country to negative at the end of last week, meaning that its rating of Turkish sovereign debt could be cut deeper into junk territory.“The negative outlook reflects what we view to be rising risks to Turkey’s externally leveraged economy over the next 12 months from extreme currency volatility and rising inflation, amid mixed policy signals,” S&P said. Erdogan, a staunch opponent of high interest rates, has declared in recent weeks that he is seeking to implement a new economic model for his nation of 83m people.By cutting rates, he argues, the country will benefit from a competitive currency that will boost exports, attract foreign direct investment and create employment. Economists warn that it will come at the cost of exacerbating inflation that was already growing at an annual rate of 21 per cent last month, according to official data, and hitting living standards. It also risks financial instability in a country that is heavily reliant on foreign financing to keep its economy afloat.The US investment bank Goldman Sachs said the need to raise — rather than cut — interest rates was “even more acute” this month as it argued that the current approach was “not sustainable”.“Nevertheless, the authorities appear committed to maintaining a low rate policy,” it added.The consensus expectation among analysts is that the central bank will cut its benchmark lending rate by 1 percentage point to 14 per cent on Thursday. Still, the central bank’s decision this month to resume a policy of seeking to defend the lira has led some analysts to question whether Erdogan may be reaching the limits of his tolerance to currency weakness — and whether he may instead allow a pause in the rate-cutting cycle.

On Monday, Turkey’s central bank announced it had intervened in the currency market for the fourth time so far in December. The bank had sold an estimated $2bn to $3bn on the three earlier occasions, according to Barclays. The UK-based bank said there were “large uncertainties” around this week’s rates decision and those in the months ahead.Yet one senior Turkish official offered a signal that Ankara was committed to ploughing ahead with its contentious approach. The new finance minister, Nureddin Nebati, told business representatives in a closed-door meeting last week that there would be “no turning back” from the policy of rate cuts, according to an article published on Sunday by the columnist Abdulkadir Selvi, who is seen as close to the government.Nebati, who was appointed by Erdogan two weeks ago after his predecessor resigned, reportedly said that the authorities were not willing to allow Turkey to enter an “interest rate spiral”. More