THE UK and the EU have failed to strike a post-Brexit deal on financial services, Rishi Sunak has admitted.

The Chancellor said the scheme, which was supposed to have been agreed months ago, “has not happened”, and the UK could “do things differently and better” instead.

The two sides had been in talks to achieve a mutual recognition deal, with financial services rules in the EU and UK recognised as being equivalent, but progress has stalled.

The UK’s financial services industry had been pushing for equivalence rulings to ensure wide-ranging access to continental markets.

Paris is currently encouraging City of London firms to relocate there because of Brexit.

UK ministers hoped to sign a “memorandum of understanding” on equivalence rules by March, as the financial sector was largely left out of last year’s Brexit deal.

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However in a speech at the Mansion House in London, the Chancellor said there had been a failure to reach an agreement since the transition period ended in January.

He said: “As I said in parliament in November, our ambition has been to reach a comprehensive set of mutual decisions on financial services equivalence.

“That has not happened. Now we are moving forward. Continuing to cooperate on questions of global finances, but each as a sovereign jurisdiction with our own priorities.

“We now have the freedom to do things differently and better, and we intend to use it fully."

Mr Sunak added there was no reason an agreement could not be signed with the EU and fears that regulatory standards could slip were wide of the mark.

He said: “The EU will never have cause to deny the UK access because of poor regulatory standards. Take firms like clearing houses, which are fundamental to the open, free markets that we advocate.

“The UK already has one of the world’s most robust regulatory regimes for central counterparties. And our plan is not to weaken but strengthen that regime, because we believe in high-quality regulation.

“It is also entirely within international norms for like-minded jurisdictions to use each other’s market infrastructure.

“So I see no reason of substance why the UK cannot or should not continue to provide clearing services for countries in the EU and around the world.”

His comments came as he also laid out details about new deals with Singapore and Switzerland, alongside ongoing discussions with the US over financial markets.

“The US is already our biggest market, with the UK exporting 28 billion of financial services every year.

“Our ambition is to deepen regulatory co-operation even further, with our closest ally.”

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The Chancellor also said the UK must have a “mature and balanced relationship” with China.

“The truth is, China is both one of the most important economies in the world and a state with fundamentally different values to ours," he said.

“We need a mature and balanced relationship.

"That means being eyes wide open about their increasing international influence and continuing to take a principled stand on issues we judge to contravene our values.”

The Chancellor said the UK will continue to improve its financial services to be competitive globally.

He said these will include increasing links with other global financial centres, being more competitive on regulation and tax, tapping into the growing tech sector and enhancing the UK’s position for green finance.

He confirmed the launch of a green savings bond for households to invest directly into the scheme which will fund new firms focused on reducing carbon emissions.

The Chancellor said there will also be new requirements for businesses and financial products to disclose sustainability information.

Also giving his annual Mansion House speech, Bank of England Governor Andrew Bailey said high inflation was set to continue for the rest of the year as the economy came back to life after the Covid lockdown.

The Bank of England’s inflation target is 2%, but the most recent inflation figures were at 2.1% in May following increases primarily in energy prices.

Mr Bailey said the rise should be temporary, but warned there could be problems if pent-up demand was bigger than expected or strained supply chains.

He said: “We expect that rise to continue in the near term as we go through the rest of this year, such that CPI inflation is expected to pick up further above the target, owing primarily to developments in energy and other commodity prices.”

The Governor said if inflation didn't cool down, the Bank would not hesitate to introduce new measures to reduce high spending, such as increasing interest rates.

He said: “If we see those signs (of inflation not falling), we are prepared to respond with the tools of monetary policy.”

Mr Bailey said inflationary pressures have come from prices returning to pre-Covid levels and demand outstripping supply.

He explained: “There are shortages of some products, notably semi-conductors, some agricultural commodities, and some end-user products such as fitness equipment and home and garden furniture.”

He added: “It is entirely possible that we will witness temporary periods of excess demand, or what more commonly we might describe as ‘bottlenecks’.

“There are good reasons to interpret this as a temporary feature, but we must be on the lookout for the risk that these features are more sustained.”

Those risks include demand for products remaining high at a time when supply chains are squeezed – although he suggested as restrictions ease, people will turn to spending saved cash on experiences and services.

He also warned that the huge sums saved by typically richer households during the crisis could lead to greater spending than first thought.

The Office for Budget Responsibility (OBR) has predicted around 5% of the £180 billion in savings will be spent.

The Governor also said wage pressures could impact inflation.