23 Sep 202116:07Closing post
Time to wrap up, on a day in which the UK’s supply chain problems and the energy price crisis worsened, and fears of a winter cost of living crisis mounted.
Here are today’s main stories:
Bank of England warns energy crisis will push inflation above 4% this winterRead moreInflation is poised to top 4%: is the Bank of England asleep at the wheel?Read moreUK economic growth slows to weakest level since Covid rules eased in MarchRead moreBP rations petrol and diesel deliveries to its service stationsRead moreTesco warns of Christmas panic buying if driver shortage persistsRead moreUK energy bill crisis prompts flood of calls to Citizens AdviceRead moreMinisters consider plan to ease £20-a-week universal credit cutRead more UK bailout of US CO2 firm unfair while energy suppliers go under, says gas bossRead more
And in other news..
BA abandons plans for short-haul subsidiary airline at GatwickRead moreWatchdog to launch crackdown on ads falsely claiming green credentialsRead more
And for those less worried about making ends meet….
Wine beats scotch and Hermés bags as top luxury investmentRead more
Goodnight. GW
23 Sep 202116:06
Ministers are examining a £1bn-a-year increase in benefit payments to cushion the impact of the imminent £6bn-a-year cut in universal credit, my colleagues Peter Walker and Patrick Butler write…
After growing pressure to reverse the £20-a-week cut, the Treasury is looking at a proposal from the Department for Work and Pensions (DWP) to let working people who receive the benefit keep more of their earnings, it is understood.
It would involve reducing the “taper rate” for universal credit (UC) from 63p to 60p, which would cost the government around £1bn a year, and could be announced in next month’s budget.
The mooted plan is a sign of the pressure felt by the DWP and the government more widely ahead of the end of a £20-a-week increase in universal credit, brought in during the pandemic but due to end on 6 October – the day Boris Johnson makes his leader’s speech to the Conservative conference.
More here:
Ministers consider plan to ease £20-a-week universal credit cutRead more
23 Sep 202116:01
Jobs are likely to be lost at British energy supplier Utility Point Limited, after administrators took control of the company.
Utility Point collapsed last week, and Ofgem has transferred the Company’s 220,000 customers to EDF through its Supplier of Last Resort process.
Alvarez & Marsal Europe LLP (A&M) have been appointed as administrators to Dorset-based Utility Point, which employed 197 people.
It warns:
Regrettably, there are likely to be some redundancies, with a proportion of the staff being retained in the short term to assist with the transfer of customers to EDF, raising of final bills, the credit control process and help the Joint Administrators with their statutory duties.
23 Sep 202115:52FTSE 100 lags as pound rallies
In the City, the FTSE 100 index of blue-chip shares has closed slightly lower – lagging other world markets.
The FTSE 100 dipped 5 points, or 0.07%, to 7078 points.
Shares were held back by the jump in the pound (which hits multinational exporters) as traders priced in an earlier interest rate rise.
Engineering firm Rolls-Royce (+3.9%) led the risers, with banks and mining companies also stronger.
But gambling firm Entain shed almost 5%, having hit record highs yesterday after a takeover approach from US fantasy sports and betting group DraftKings.
That approach creates a clash with Entain’s US partner (and previously thwarted bidder) MGM, as Hargreaves Lansdown’s Nicholas Hyett explained yesterday:
BetMGM, Entain’s US joint venture with casino operator MGM, is likely the beacon that attracted DraftKings. Entain estimates the US sports-betting and iGaming market will be worth approximately $20.3bn by 2025. Recent market share gains and the steady increase in the number of states in which the company operates suggest BetMGM could be in-line for a sizeable chunk of that money.
However, MGM can effectively veto the deal if it would see Entain become part of a rival US gambling operation, the kind of operation DraftKings already runs. The acquisition could also draw criticism from US regulators as an antitrust issue.
European markets had a stronger day, with Germany’s DAX up 0.85% and France’s CAC gaining almost 1%.
? European Closing Bell ?
?? FTSE 100 -0.07% at 7,079
?? STOXX 50 +1.06% at 4,194
?? DAX +0.88% at 15,643
?? CAC 40 +0.97% at 6,701
?? IBEX 35 +0.78% at 8,878
?? MIB +1.40% at 26,078
?? SMI +0.84% at 11,937
~ @Newsquawk pic.twitter.com/Sklhn61jF3
— PiQ (@PriapusIQ) September 23, 2021
Michael Hewson of CMC Markets explains:
It’s been another positive day for European markets, up for the third day in a row, despite evidence that the broader economy is slowing. The FTSE100 for its part has done its best to reprise its role as the perennial party pooper, sliding back from its intraday highs, and struggling to close in positive territory. Some of that may be down to the sharp rise in the pound, and sharp rise in gilt yields.
The biggest loser has been Entain as it gives up some of the recent gains of the last couple of days. We’ve also seen some modest profit taking on utilities and consumer discretionary shares, with National Grid, Severn Trent and United Utilities all softer
Lloyds Banking Group, Barclays and NatWest Group are amongst the better performers as a consequence of the rise in gilt yields.
23 Sep 202115:32
How soon could the first UK interest rate rise since the pandemic began come?
Ruth Gregory of Capital Economics says a rate rise in 2022 now seems the most likely outcome, with February or May both plausible (the BoE will publish a new Inflation report, with updated forecasts, at both those meetings):
A rate hike in November 2021 looks too soon, given that all members agreed that the outlook for the labour market was particularly uncertain and that there was a “high option value in waiting for additional information” about the impact on unemployment once the furlough scheme ends in late-September. That suggests most MPC members are willing to sit tight for a few months.
In our view, a rate hike in February/May 2022 seems plausible given that, according to our forecasts, this is when inflation is likely to be at its highest, and when the upside risk to inflation expectations may be at their greatest.
Melissa Davis, chief economist at Redburn, also sees rates rising from their current record lows of just 0.1%, but also fears growth is weakening.
It is Central Banking 101 not to raise rates in the face of commodity price pressures pushing up inflation as it is unnecessarily costly in terms of unemployment and growth.
Nonetheless, the MPC seem on track to raise rates to 50bps next year and start allowing bonds on the balance sheet to mature. Fiscal policy is about to tighten sharply in the UK with the ending of the furlough scheme and prospective tax hikes – the risk of lacklustre growth setting in before the economy has recouped its Covid losses should be of greater concern than a temporary spike in inflation.”
23 Sep 202114:54
BP’s decision to close some of its petrol stations because of a shortage of lorry drivers shows that the supply chain crisis is getting worse rapidly, warns Jim McMahon MP, Labour’s Shadow Transport Secretary.
McMahon says:
“This is a rapidly worsening crisis that the Government has failed to heed the warnings of for a decade, never investing in or valuing working class jobs.
“Sticking plaster solutions are not going to solve it. Ministers must take decisive steps now to tackle the 90,000 driver shortfall.
“If they fail to take action, the responsibility for every empty shelf, every vital medicine not delivered and every supplier not able to meet demand lies at the Conservatives’ door.”
Last month, the government told employers to invest in UK-based workers rather than relying on labour from abroad.
But UK firms have warned that training up new drivers, to make up for an exodus of European Union hauliers because of Brexit and Covid, can’t happen fast enough to fix the crisis.
They have been urging ministers to add HGV drivers to the shortage occupations list, so that EU drivers can obtain visas to help fix the supply chain crisis.
Here’s our story on the fuel rationing:
BP rations petrol and diesel deliveries to its service stationsRead more
23 Sep 202114:45
Back in the markets, two-year British government bond yields surged by their most since March 2020 today, as traders bet on an earlier rate rise by the Bank of England.
The yield, or interest rate, on two-year gilts jumped from 0.27% to 0.37% today.
Ten-year gilt yields (a measure of longer-term borrowing costs) also jumped, from 0.79% to around 0.9%.
23 Sep 202114:36
Resolution Foundation show how poorer households face the biggest hit, from rising energy bills:
The poorest households in Britain spend almost three times as much of their income on fuel bills as the richest ten per cent. They are more exposed to both the rise in energy bills – and fall in Universal Credit – coming this October. pic.twitter.com/t8MYUZOsyh
— Resolution Foundation (@resfoundation) September 23, 2021
23 Sep 202114:18Inflation is poised to top 4%: is the Bank of England asleep at the wheel?
Despite inflation heading above 4%, the Bank of England is adopting a wait and see approach by leaving interest rates on hold today, and continuing its QE stimulus programme.
On the face of things, the Bank of England is asleep at the wheel and should be taking steps to ease growing price pressures…. but it’s not quite that simple, as our economics editor Larry Elliott explains:
One reason for that is the high degree of uncertainty about the prospects for the economy. The rise in inflation has coincided with a slowdown in the recovery that began when lockdown restrictions started to be eased in March. There are more people still on the government’s furlough scheme than the Bank predicted in its August health check on the economy, and the scheme ends next week.
A second reason is that the Bank believes higher inflation is transitory (even though a bit less transitory than it previously thought). There are precedents for the MPC not taking immediate action to tackle an inflation overshoot when the economy has been subject to a severe shock.
With the furlough scheme ending, living standards squeezed and tax rises to come in the spring, the Bank would prefer to leave policy unchanged rather than act in a way it might later regret.
Here’s Larry’s analysis:
Inflation is poised to top 4%: is the Bank of England asleep at the wheel?Read more
23 Sep 202114:14
So the UK is right now:
➡️Paying the highest ever wholesale electricity prices
➡️Suffering the highest ever wholesale gas prices
➡️Rising retail power / gas prices
➡️BP is running short of gasoline
➡️And 1.5 million households have seen their retail energy provider collapse
— Javier Blas (@JavierBlas) September 23, 2021
23 Sep 202114:00Full story: Bank of England warns energy crisis will push inflation above 4% this winter
The Bank of England has warned surging household energy bills will drive inflation above 4% this winter, with persistent pressure on living costs expected to last through to the middle of next year despite a slowdown in the economy.
Voting unanimously to keep interest rates at the historic low of 0.1%, the Bank’s monetary policy committee (MPC) warned severe shortages of workers and raw materials were weighing on Britain’s economic recovery from lockdown.
In a downbeat assessment as inflation soars despite a growth slowdown, Threadneedle Street downgraded its estimates for the level of UK GDP at the end of September by about 1%, meaning the economy would remain about 2.5% below its pre-pandemic level heading into the final three months of the year.
The nine-member MPC, which includes the governor, Andrew Bailey, said Ofgem’s hike in the household energy price cap in October, amid record wholesale gas and electricity prices, would lead to a fresh burst in inflationary pressure this winter.
Inflation as measured by the consumer prices index (CPI) jumped to 3.2% in August, the highest level in nearly a decade. The Bank said distortions caused by the rapid recovery from last year’s economic slump were driving up the barometer for living costs, with an increase expected to rise “above 4%” by the end of December.
It said Ofgem’s update of the energy price cap from April next year, which is likely to put further pressure on household energy bills, risked inflation sticking above 4% until the second quarter of 2022. Inflation is then expected to gradually fall back towards the 2% target rate set by the government.
More here:
Bank of England warns energy crisis will push inflation above 4% this winterRead more