The average cost of an annual household energy bill in Great Britain has dropped below £2,000 for the first time in 18 months, but that average masks the fact that some people – and particularly the poorest – will see the amount they pay for energy rise compared to last winter.
Everybody acknowledges the price cap system is broken. Chris Hayes, a senior analyst at Common Wealth, a left-of-centre thinktank, said:
The Ofgem price cap regulates the selection of deckchairs on offer to the passengers of the Titanic. Its original purposes was to prevent retailers from exploiting consumer inertia by companies stealthily raising their default tariffs.
Today it simply caps how much of the pain from elevated wholesale prices retailers can pass onto consumers versus energy suppliers absorbing the shock themselves. Meanwhile, the wholesale energy market is governed by catastrophic dysfunction — not least by electricity prices being set by the price of gas. This system needlessly copy-pastes the soaring prices in the 40% of our electricity mix coming from gas, onto the remaining 60%. This will plunge us back into crisis the next time gas prices spike.
But what will replace the price cap – and when – is totally unclear, as the Guardian’s Alex Lawson writes.
Even the energy regulator presiding over the cap, Ofgem’s Jonathan Brearley, has admitted the mechanism is “very broad and crude” and has called on ministers to implement a “more rigorous framework” to protect consumers. But the next step looks far from simple and the government does not appear to be giving the problem much thought.
The cap, originally introduced to prevent loyal customers who did not switch supplier from paying more, appears to be the wrong tool for today’s crisis. As energy prices increased, it held prices down, and was blamed for sending 29 suppliers bust, leaving consumers with a £2.7bn tab. At the same time, it is set too high to help the estimated 6m households who simply cannot afford to properly heat their homes.
It is rare to have debt campaigners and thinktanks associated with the Tory right singing from the same hymn sheet, but they have found common cause in calling for social tariffs: subsidised tariffs for households who cannot afford to pay the full whack.
But that comes with political problems as well. You can read Alex’s full analysis here:
In other business and economics news today:
The UK and India hope to be able to complete a free trade agreement as soon as this year, according to India’s finance minister.
Union leaders have called for Wilko’s 12,500 employees to be prioritised, after a deal that could have rescued jobs at the ailing budget chain was rejected because its debt holders could recoup more from a break-up of the business.
A “significant minority” of landlords and letting agents may not be following consumer protection rules, according to the UK’s competition watchdog, which raised concerns including complaints about onerous guarantees, discrimination against certain types of tenants and fees charged to older people entering retirement housing.
Farmers in England are being left without crucial nature recovery payments and unsure of what to plant after delays to a post-Brexit scheme.
Germany’s economy may be heading for the third quarterly contraction in 12 months after weak economic sentiment data.
You can continue to follow the Guardian’s live coverage from around the world:
In our coverage of the Russian war on Ukraine, the Kremlin says it is an “absolute lie” it was behind plane crash and refuses to confirm Prigozhin’s death
In the US, Donald Trump is defiant after surrendering on election interference charges
In the UK, Tory frustration with Nadine Dorries grows as a former party whip calls for clarity
Thank you for following our live coverage of business, economics and financial markets this week. Please do join us bright and early on Tuesday (after the UK’s bank holiday) for more. JJ
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Union leaders have called for Wilko’s 12,500 employees to be prioritised, after a deal that could have rescued jobs at the ailing budget chain was rejected because its debt holders could recoup more from a break-up of the business.
Doug Putman, the Canadian entrepreneur who rescued HMV from administration in 2019 and returned it to profit, is understood to have been attempting to take on at least 200 of the group’s 400 outlets and continue operating them under the Wilko brand, saving jobs and helping keep orders flowing for suppliers.
Sources said that Putman had been in talks with Wilko’s administrators at PwC for at least two weeks but his offer could not match the cash raised from liquidating the chain’s assets, including its leaseholds and stock. Wilko’s biggest creditor is restructuring specialist Hilco, which loaned the company £40m shortly before it went bust.
There is an interesting move on the FTSE 250 today: retailer Watches of Switzerland has lost a fifth of its value after Swiss watch brand Rolex bought a rival retailer Bucherer.
Bucherer said it was selling because of owner Jörg Bucherer’s choice to sell the business, given he has no direct descendants to carry on the company. However, analysts said it could pose problems for the UK-based retailer, Watches of Switzerland, for whom Rolex is a key supplier.
Jonathan Pritchard of Peel Hunt, an investment bank, wrote:
Rolex suggests that its relationship with Bucherer will not change and it will remain independent. That is almost impossible to believe: for example, there are 48 stores that do not sell Rolex: that may change.
If our suspicion is right and the shape of global Rolex allocations evolves, it is unlikely to be a positive for WOS: around 50% of its sales are Rolex, so other brands will have to step up but sentiment will be harmed.
Eleonora Dani, an analyst at Shore Capital, another investment bank, said it was a “significant shift in the landscape as Rolex takes ownership of a company with which it has maintained a close and mutually beneficial relationship for nearly a century.
However, the deal could raise competition regulators’ interest, she added.
It looks like stock markets on Wall Street are going to gain ground to end the week, ahead of an important speech by Federal Reserve governor Jerome Powell.
Futures trades indicate the Nasdaq will gain 0.4%, and the Dow Jones industrial average and the S&P 500 will gain 0.5% apiece.
The Chinese property industry has been in crisis mode for more than a year, to the point that some analysts think the bursting of the bubble will derail growth. For the companies who grew rapidly during the boom years, the pain keeps on coming.
The latest development is that the second-largest private property developer is on the verge of losing its coveted investment-grade rating from credit ratings agency Moody’s.
Reuters reports:
Moody’s downgraded China’s second-largest private property firm Longfor’s credit ratings to Baa3, the lowest rung of investment grade, on Friday and put it “on review” for a further downgrade.
“The rating downgrade reflects our expectation that Longfor’s credit metrics and liquidity buffer will decline amid slowing contracted sales, continual margin pressure and still constrained funding access to the debt capital markets,” said Kaven Tsang, a Moody’s senior vice president.
“The review for (another) downgrade reflects high uncertainties over the company’s ability to improve its operating performance and recover its access to funding amid uncertain market prospects and volatile funding conditions”.
Other companies who are struggling include Evergrande, whose US arm filed for bankruptcy protection last week, and a host of smaller developers who are hoping against hope that the Chinese government will step in to bail them out.
The UK and India hope to be able to complete a free trade agreement as soon as this year, according to India’s finance minister.
Nirmala Sitharaman on Friday said further talks will be carried out as the two sides try to reach an agreement, Reuters reported. Speaking at an industry conference in New Delhi, Sitharaman said:
I won’t be wrong in saying a free trade agreement with UK is very close.
India was once a British colony but the world’s most populous country has a fast-growing economy that has drawn the attention of some British politicians hoping to provide an economic boost after the Brexit vote.
UK business and trade secretary Kemi Badenoch is in India for a meeting of G20 trade ministers, and is expected to continue talks over a deal.
However, those talks are likely to be problematic for some of Badenoch’s colleagues in the Conservative party if they include liberalisation of immigration rules. Home secretary Suella Braverman last year expressed “reservations” about Britain’s trade deal with India because it could increase immigration to the UK.
The ups and downs of global energy prices have an obvious impact on household budgets but, as a new piece of research shows, they also affect the big picture macro economy.
A point made consistently by the Bank of England last year was that Britain had became a poorer country as a result of the sky-rocketing cost of gas and that we all had to suck it up.
The message from the Bank of England to workers as they contemplated putting in wage demands to protect their living standards was that the UK’s terms of trade had worsened because import prices were rising faster than export prices. There was no point in seeking compensatory pay awards because they would simply lead to a wage-price spiral.
Threadneedle Street’s governor, Andrew Bailey, and its chief economist, Huw Pill, both got into hot water for making this point.
That was then. As an interesting piece of research by Gerald Holtham and Michael Roberts of the consultancy Independent Economics points out, the adverse terms of trade shock was short-lived and – due to falling global energy prices – has now been more than reversed. As a result, they say, there is no need for workers to continue seeing their living standards eroded. It is not only possible but desirable for wages to rise more quickly than prices.
Real wages are down 4.5%, but there has been no enduring terms of trade loss. By all accounts labour markets are tight, so there is no reason to expect the share of wages to fall to such an extent.
It must be expected, therefore, that increases in average earnings will run ahead of price increases for some time. Calling for wage restraint to lower inflation at this juncture is simply a demand for wage cuts.
Octopus Energy is reportedly in “detailed talks” to buy Shell’s UK household energy supply business, as the oil company seeks to end its short-lived foray into the sector.
Shell started supplying energy directly to UK households for the first time after a 2017 takeover, but it put the business up for sale in January after a period in which retail suppliers have struggled to make money amid a global energy crisis.
Octopus has become the frontrunner in talks to take over the business, but other companies are still in contention, Sky News reported on Friday.
A takeover would further entrench Octopus’s position as one of the biggest suppliers after a rapid expansion that has included taking on customers of Bulb, a rival that collapsed during the crisis.
Octopus declined to comment. Shell declined to comment to Sky News.
This chart shows just how unusual the last two years have been in the energy market.
Ofgem’s price cap for British households would have risen to more than £4,000 last winter, had the government not finally stepped in with the energy price guarantee. It has finally dipped back below £2,000. Yet it still remains far above the average before the crisis.
But for many it does not represent much of a let-up in the pressures on them. These data from Citizens Advice show how the problems pile up: as the crisis has continued energy debt levels from those who asked for advice on debt have risen to more than £1,700 – £500 more than before the pandemic.
The UK is not the only economy struggling with inflation: Germany’s economy is showing signs of weakening as well, according to new data.
The Ifo business climate index, which has long tracked the fortunes of Europe’s largest economy, fell to 85.7 for August, down from 87.4 in July. Analysts polled by Reuters had forecast an August reading of 86.7.
The data “strongly suggests that the German economy will contract again in the third quarter after stabilising in the second”, said Andrew Kenningham, chief Europe economist at Capital Economics.
The downturn is broad-based, encompassing all the major sectors, i.e., manufacturing, services, retail and construction.
This chart from Melanie Debono, senior Europe economist at Pantheon Macroeconomics, shows how the Ifo index is a good predictor of German GDP – which in this case is bad news for the Germany economy.
Clemens Fuest, president of the Ifo Institute, said:
Sentiment among German managers has darkened further. This is [the] fourth consecutive fall. Assessments of the current situation fell to their lowest level since August 2020.
Moreover, companies are increasingly pessimistic about the months ahead. The German economy is not out of the woods yet.
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2023-08-25 13:16:29Z
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