The Archbishop of York Stephen Cottrell has welcomed the UK Government’s plan to ban goods imported from illegal Israeli settlements, while asking whether ministers should target financial institutions.

Speaking in the House of Lords on Wednesday, England’s second most senior bishop expressed support for commitments made earlier this week by Foreign Secretary Ed Miliband.

Mr Miliband confirmed the import ban and pledged to "take action against specific companies and individuals who provide services such as construction, infrastructure, financing, or real estate for settlement expansion".

The bishop queried whether "further measures" could target Israeli banks backing West Bank housebuilding.

“We’ve called for such principled action over many years,” he added.

“We believe these measures are just, necessary and frankly overdue – though we also want to emphasise that in acting against specific policies of the Israeli government, we of course remain unreservedly opposed to the evils of antisemitism here in the UK and everywhere.”

Mr Cottrell turned to the area known as E1, a tract of land east of Jerusalem where the Israeli government is seeking bids from developers to construct more than 1,200 settlement homes.

He asked: “Are further measures needed to deter Israeli banks from guaranteeing such bids?”

Foreign Office minister Lord Wood of Anfield replied: “Our announcement yesterday is a signal that any company that wants to take part in any of the construction or related processes in that tender should think twice, because we are bringing forward steps – not a blanket services ban at all but targeted measures – to focus on any company that assists or profits from expansion of settlements.”

Mr Miliband told the Commons on Tuesday a “new approach” to the West Bank was needed because the E1 development would render a two-state solution “unviable” by “cutting through the heart of Palestine”.