ALEX BRUMMER: The BoE’s negative projections for our economic future were made on a path of high rates reaching 5.25%
The future direction of interest rates looks much better than it did just a few weeks ago.
The Bank of England, as is normal, took its forecast from the market rates as it is the only solid indicator it has.
All of his poor projections for our economic future — from a prolonged recession to an unemployment rate of 6.5% versus 3.5% now — were made on a path of high rates hitting 5.25% for the year. next.
“The Bank of England, as is normal, took its cue from market rates because that’s the only solid indicator it has”
As good a barometer as the markets are, they are still feeling some of the aftershocks of the Truss/Kwarteng interlude, even though many of the tax cuts and energy subsidies on offer beyond April next year have been scrapped. .
What is more fascinating is the central projection of the Monetary Policy Committee (MPC) which sets interest rates, showing that inflation will decline from the start of next year and that consumer prices could fall “somewhat below” the 2% target by November 2024.
If that turns out to be the case, then much of what he has to say about the outlook for production and jobs could be pushed aside. An alternative assumption that interest rates remain constant at 3% (the current bank rate after the last three-quarters of a percentage point hike) would mean much stronger economic activity.
It is likely that there are more interest rate hikes to come and the highest point will be somewhere above 4%. After the slow rise, the UK is now in sight of peak rates. But that raises the question of why the Bank would base its key forecasts around market rates it doesn’t really believe in.
Two dissident outside MPC members, Silvana Tenreyro and Swati Dhingra, who voted for smaller increases, could be prescient.
Listen to the rhetoric of the British political classes and you think everyone in the energy supply chain is making it up at the expense of consumers.
The left point to EDF in France, which has recently become fully public again, as an example of what the UK would do. Labor wants to create a new force in the electricity market called the Great British Energy Company.
He has to be careful what he wishes for. Harbor Energy, the North Sea’s largest oil and gas producer, will not rush to secure new operating licenses if “windfall taxes” are extended. The company is clear that a £350m levy on its operations will affect investment plans.
Harbor Energy, the North Sea’s largest oil and gas producer, will not rush to secure new operating licenses if ‘windfall taxes’ are extended
The impact on major electricity companies from the war in Ukraine is proving to be just as costly as the 2008 banking crisis. German energy group Uniper has just revealed that it made a loss of £35 billion in the during the first nine months of the year.
It is the biggest deficit ever reported by a German firm and larger than the £24bn red ink of the Royal Bank of Scotland (now NatWest) after Fred Goodwin’s car crash leadership. Most of Uniper’s losses are due to its efforts to secure gas supplies to power German homes and factories following the shutdown of Russian supplies. He’s been on a frantic rush to secure power reserves to keep the lights on.
The company’s survival is only possible thanks to a promised £25 billion bailout from Berlin. There is no room for a schadenfreude in Britain given that Uniper operates seven power stations, a fast cycle gas storage facility and two high pressure gas pipelines in the UK.
No one can guess how all of this will be impacted by Uniper’s difficulties and bailout. What this shows is that the idea that windfall taxes alone can solve the UK’s energy market woes is fake news. Britain does not need a public energy company where the losses, as in Germany, fall on the taxpayer.
Sainsbury’s finds itself in a tricky position, caught between suppliers insisting on maintaining profit margins and competitors committed to lowering prices.
It opted to sacrifice margins to be competitive, with same-store sales up 3.7%, helped by lower-priced own-brand ranges. Moreover, despite the squeeze in real incomes, Argos – the catalog retailer owned by Sainsbury’s – is gaining momentum as the holidays approach. Some seasonal cheers for investors.