BETA filters Key Events (7) UK (12) Liz Truss (9) USA (5) Europe (3) Kwasi Kwarteng (3) The Trust also rules out introducing a new windfall tax to pay for the new energy guarantee. It claims it would undermine the national interest and hinder efforts to develop domestic energy production.
Truss Announces ‘Energy Price Guarantee’
Prime Minister Liz Truss has announced the government will introduce an “energy price guarantee”, meaning typical households will pay no more than £2,500 a year for each of the next two years. This will exceed the Ofgem price cap, which was due to rise to £3,549 a year for dual fuel for an average UK household next month. Truss says the pledge will give households certainty about their energy bills, with the same support being provided in Northern Ireland (where there is no price cap). The cost of the program will be set by Chancellor Kwasi Kwarteng later this month – so we don’t know how much it is expected to cost (the final bill will depend on wholesale gas prices). Liz Truss announces energy bill rescue plan in House of Commons now. He will unveil the program in a speech, which will open a general discussion on energy costs. Andy Sparrow’s Politics Live blog has all the details: The recent fall in wholesale gas prices means Britain’s price cap will not rise as much as expected next year, analysts at Cornwall Insight say. Cornwall has now estimated that the cap will rise to £5,015 for an average bill in April, not more than £6,600 as previously feared. Cornwall says this is due to “announcements from European policy makers and a well-stocked GB energy system”. But he adds: It is important to note that these are still extremely high and will represent a significant increase in household energy bills. It does not diminish the importance of the action the government is taking today. 🚨NEW 🚨Cornwall Insight says based on the latest moves in wholesale energy prices, peak energy bills would be £5k next year, not £6.6k as previously predicted. Obviously this is all before government intervention. It highlights how dramatic the price run is… pic.twitter.com/Gfyvkq7s9l — Ed Conway (@EdConwaySky) September 8, 2022 Just to put it in perspective: Based on where wholesale gas prices were a few weeks ago, the cost of capping household bills at £2,500 would be around £120bn. Based on where they are now, it would cost around £70bn. The DIFFERENCE concerns the cost of the license! https://t.co/cEhLRtjkx4 — Ed Conway (@EdConwaySky) September 8, 2022 Updated at 11.41 BST
Oil is at an eight-month low on recession worries
Oil prices have fallen to their lowest level since January on concerns that a global economic slowdown will weigh on demand for energy. Brent crude has fallen below $87.50 a barrel, extending recent losses. In June, Brent was trading at $120 a barrel, but has fallen as fears of a recession have grown. Ole Hansen, head of commodities strategy at Saxo Bank, says the latest Covid-19 lockdowns in China could also affect demand. Before falling below $90 for Brent and $85 for WTI, the market had briefly turned on Putin’s threats to cut supplies to countries that agreed to a price ceiling for Russian oil and natural gas. Supply woes had little impact, even though the EIA cut its annual forecast for oil production for this year and next, while raising the outlook for global demand amid rising gas-to-fuel activity, mainly in Europe. The likelihood of a nuclear deal with Iran increasing supply is also fading. The divergence between crude oil prices and the European energy sector relative to the market is unsustainable. The sector still looks very bullish given the recent acceleration in crude’s decline. Unless crude rises sharply and rapidly… pic.twitter.com/QlLYI7y9hV — Jean-Charles GAND (@jeancharlesgand) September 8, 2022 More rail workers are set to vote for strikes amid growing industrial unrest across the country over the cost of living crisis. The Private Transport Salaried Association (TSSA) has said its members at Govia Thameslink Railway (GTR) will vote in the coming weeks on whether to join the wave of walkouts in the rail industry over jobs, pay and conditions. TSA – VOTING OPENS THURSDAY 15 SEPTEMBER. VOTING CLOSES THURSDAY 6TH OCTOBER AT 12:00 (NOON) #News #Forex — Capital Hungry (@Capital_Hungry) September 8, 2022 GTR operates the Thameslink, Southern, Great Northern and Gatwick Express routes, and TSSA members at GTR are in jobs such as platform and ticket office staff, train crew, engineers, control, administration and management. TSSA Secretary General Manuel Cortes said: “This is a clear signal to GTR that our members are not willing to be pushed in the face of an escalating Tory cost of living crisis and a government that wants to cut rail jobs. “I want to encourage our members to vote yes on both strike and no-strike action because we know we are in a fight for the future of our railways. The Resolution Foundation’s Torsten Bell is unimpressed by the political debate over how to pay for the energy support package: Windfall tax policy is heading into farce territory.- Govt shouts windfall taxes kill growth… while literally implementing one- Labor shouts windfall taxes are The answer.. even though they can only cover a fraction of the cost of the upper limit — Torsten Bell (@TorstenBell) September 8, 2022 More constructively, my strong preference would be for much bigger/broader action on windfalls, while I recognize that lending will take most of the pressure — Torsten Bell (@TorstenBell) September 8, 2022 There is a @trussliz-friendly way to deal with windfalls: instead of windfall taxes, you stop windfalls, e.g. revenue cap on low-carbon electricity generators. Then he can say “Labour just want to tax the windfall, I’m stopping them” — Torsten Bell (@TorstenBell) September 8, 2022 All else being equal, I’d prefer a Truss friendly that regulates domestic windfalls where we can instead of taxing them — Torsten Bell (@TorstenBell) September 8, 2022 Next month’s UK gas price fell 5% this morning to 384p per heat. That’s about 40% below mid-August highs, but still nearly triple the price a year ago. The European benchmark for next month is also 6% lower. Both prices fell last week on optimism that Europe was filling its storage faster than expected and was planning reforms to stem rising gas prices that are driving up electricity. But they then jumped on Monday after Gazprom said the Nord Stream 1 pipeline would remain closed. The UK’s most volatile wholesale gas price the following day rose 33%. The government’s energy bill bailout could be one of the biggest welfare programs ever, Jefferies analysts say. Based on expectations for today’s announcement, they say it could cut domestic bills by 55% compared to market prices and cost up to £155bn, or 7% of GDP. This will initially be funded by the government and recovered through the tax base over time. The expensive package seems to offer something for everyone, albeit without directly addressing the underlying supply/demand issues, in our view. Photo: Jefferies Jefferies adds: However, it fails to address the underlying issue of supply/demand risks in upstream gas and electricity markets, as reflected by current record commodity prices. It could be argued that this could get worse, with demand potentially increasing as the cap is reduced. To add to this, it seems paradoxical that taxes are being cut but are being relied upon to fund one of the largest welfare schemes in the UK [programmes]as a whole. Uncertainty over Liz Truss’ economic plans will weigh on the pound, explains Dr Costas Milas from the University of Liverpool’s School of Management: The long-term value of sterling is affected by economic fundamentals: sterling strengthens (weakens) when UK interest rates rise (fall) relative to US interest rates Sterling’s short-term movements are further affected by economic policy uncertainty. In other words, policy measures such as ‘unfunded’ tax cuts, talk of reducing VAT to 15% (or even 10%) and, therefore, concerns about the UK’s huge debt increase (as result) ‘hit’ sterling. . So even if a generous cost of living package is announced today, concerns about its effectiveness will remain, so economic policy uncertainty remains high. As a result, pressure on sterling will continue. The pound has weakened against the dollar (blue line) as economic uncertainty has increased (red line) Photo: Dr Costas Milas of the University of Liverpool The pound is falling below $1.15 as investors wait to see how the energy bill package will be financed, explains Matthew Ryan, head of market strategy at Ebury. “While in theory this (Truss’ plan) could be seen as a clear positive for the UK economy in the short term and a source of encouragement for the pound as it would help stave off the risk of a deep recession, investors are yet to see so. “The issue for market participants is that such massive spending would strain already strained UK finances, simply trading short-term gain for long-term hardship.” Shares in UK cyber security company Darktrace have fallen 30% after private equity group Thoma Bravo pulled out of takeover talks. Darktrace told shareholders that discussions with Thoma Bravo have ended after the two sides were unable to agree on the terms of a firm offer. Darktrace’s board says it remains “very confident in the Company’s future prospects” and has also reported a 45% jump in revenue for the latest financial year, but shares have fallen to 356p, from 514p . last night. They floated last year at 250p and jumped to 900p within months, before retreating as analysts questioned the…
