From 1h ago
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
UK businesses, charities and public sector bodies are finally going to learn what support they will receive to help them through the energy crisis – but will it be enough?
The government is expected to announce a cap on wholesale gas and electricity costs for these groups today, in the second part of its energy price guarantee to cut soaring bills.
The plan, to be announced by business secretary Jacob Rees-Mogg, is expected to cut the rate for electricity and gas for non-domestic users by about 50% and 25% respectively, compared with current contracts.
It’s likely to cost tens of billions of pounds, depending how high wholesale energy prices remain.
Two weeks ago, Liz Truss promised ‘equivalent support’ for businesses and public sector organisations over the coming winter, when she announced the government would cap domestic bills at an average ?2,500 a year
But while those domestic cap runs for two years, the business support may only last six months for many firms.
The discounts are set to apply to contracts signed since April 1 this year, and would last for six months starting from October 1, Bloomberg reported last night.
That would help companies get through the winter crunch, but provide less certainty about the future.
Yesterday, pub chain Fuller’s revealed its energy bill was due to more than double this year, from ?8m to ?18m, without government support.
And business groups have warned that the UK faces a “lost generation” of traders, adding that a cap would not affect high standing charges imposed by suppliers.
As my colleagues Rowena Masonand Alex Lawson explain:
Suppliers would be able to impose their own charges on top and would be compensated for the wholesale price cap by the government.
This would be about 21p per kilowatt-hour for electricity and 7.5p per kWh for gas. There would be a different cap for those paying variable rates. Government sources said this was the most likely model and scale of energy bill support for businesses, without saying how much the total package would cost the Treasury.
Craig Beaumont, the chief of external affairs at the FSB, said: “If the government is going for a fixed wholesale price, tomorrow we need to understand how that will be applied to small businesses’ energy bills in practice. A small business will need to be told by their supplier, fast, what their new bill will be.
“However, there may be no regulation of the other major element of small business energy bills – the standing charge.
“While consumers will have their standing charge capped, small firms won’t, and that means energy providers could continue to hike standing charges, and so still mean small businesses seeing their energy bills spiral.”
We’ll also be watching the financial markets today, where investors are bracing for another hefty rise in US interest rates tonight.
Economists are predicting the US Federal Reserve will raise its benchmark interest rate by 0.75 percentage points, the third such rise in a row, and signal plans to raise rates again in the coming months.
The agenda
7am BST: UK public finances for August
9am BST: Government’s energy business support plan expected
11am BST: CBI industrial trends survey of UK factories
3pm BST: US existing home sales in August
7pm BST: US Federal Reserve interest rate decision
7.30pm BST: Federal Reserve press conference
Business secretary Jacob Rees-Mogg was spotted yesterday being filmed in Westminster – perhaps for an online video to outline today’s energy support package?
Sam Coates of The Times has the details:
The UK’s energy support packages for households and businesses are “something of almost a panic reaction.”
That’s the verdict from Paul Johnson, director of the Institute for Fiscal Studies, this morning.
He told BBC Radio 4’s Today programme:
“I think something like this was inevitable. Some businesses were seeing their energy bills going up by five times – or certainly that was likely to happen from October.
“Just as households were going to need some protection, so were businesses.
Johnson adds that the government is right to be planning more targeted support for businesses in six months time.
“I rather wish they had done the same for households because for households and for businesses this is something of almost a panic reaction.
“You have got to do something and the only thing that they can do immediately is protect everybody, whereas in the medium term if this goes on we really want something that is more targeted.”
The prospect of a cut in UK stamp duty has pushed up shares in UK housebuilders.
Persimmon (+4.6%), Barratt (+3.6%), Taylor Wimpey (+3.3%) and Berkeley (+3%) are all among the top FTSE 100 risers, as traders anticipate changes to the property sales tax.
Weapons manufacturer BAE Systems has jumped almost 4.5%, as defence stocks rally after the ‘partial mobilisation’ announced by Putin this morning.
Today’s public finances report shows the UK government received ?7.8bn of revenue from stamp duty so far this financial year, over a third more than in April-August 2021.
VAT revenues are up 12% this financial year (to ?73.1bn), while PAYE income tax receipts are 10.7% higher (at ?81.8bn).
According to The Times, the government will announce plans to cut stamp duty in the its mini-budget this week in an attempt to drive economic growth.
Liz Truss, they explain, believes that cutting stamp duty will encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder.
But cutting stamp duty could simply allow sellers to charge more for their properties (as stamp duty is paid by the buyer), pushing up prices…
Over in Germany, the government has agreed to nationalize gas importer Uniper in a historic move to prevent its energy sector collapsing.
Under today’s deal, Germany will take control of Uniper, buying the 78% owned by Fortum — which is majority owned by the Finnish government — for about EUR480m.
The government in Berlin will also inject EUR8bn into Uniper, after the Dusseldorf-based utility ran up billions of euros of losses after Russia cut off supplies to Europe.
That sent Uniper scambling to find alternative gas supplies, as prices soared as European countries tried to built up storage before winter.
The pound has hit a new 37-year low against the US dollar, dropping below last week’s weakest point.
Sterling dropped below $1.131, levels last seen in 1985, before recovering a little. It’s now down over 16% against the dollar this year.
The euro also weakened, while safe-haven government bonds are rallying, after Russian president Vladimir Putin announced the partial mobilisation of forces in Russia, in a national address.
Putin also accused the west of planning to destroy Russia and use nuclear blackmail, and said Russia would use “all means available to us”.
Our liveblog on the Ukraine war has more details:
Chancellor Kwasi Kwarteng has said the government is right to help families and businesses, after the UK borrowed ?11.8bn last month.
Kwarteng said in a statement:
“I have pledged to get debt down in the medium term. However, in the face of a major economic shock, it is absolutely right that the government takes action now to help families and businesses,”
“Our priority is to grow the economy and improve living standards for everyone – with strong economic growth and sustainable public finances going hand in hand.”
The UK borrowed nearly twice as much in August as the Office for Budget Responsibility had predicted back in May, points out Michal Stelmach, senior economist at KPMG UK:
“Public sector borrowing came in at ?11.8 billion in August, down by ?2.6 billion from last year but ?5.8 billion above the OBR’s forecast.
This overshoot was driven by higher than expected inflation which pushed up debt interest costs, and the rollout of the first instalment of the ?650 cost-of-living payment for households on means-tested benefits which began in July.
A return of large-scale borrowing under Liz Truss’s government will be “a test for the bond markets”, Stelmach warns:
“Since the start of the year, UK 10-year government bond yields have already risen by over 230 basis points.
The expected increase in borrowing to fund the Energy Price Guarantee, coupled with a fall in the Bank of England’s gilt holdings, will be a test of whether private investors can absorb an outsized bond issuance without a further punitive increase in debt servicing costs.”
Britain borrowed more than expected in August, as soaring inflation pushed up the UK deficit.
Public sector borrowing, excluding state-owned banks, came in at ?11.82bn last month, the Office for National Statistics reports this morning.
This was ?2.6bn less than in August 2021 but ?6.5bn more than in August 2019, before the pandemic, when the UK borrowed ?5.3bn to balance the books.
A Reuters poll of economists had predicted the UK would borrow ?8.45bn.
The deficit was pushed up by the cost of repaying existing debt.
The UK spent ?8.2bn on interest payments on central government debt in August. That includes ?4.7bn due to the impact of rising RPI inflation (which pushed up the cost of repaying index-linked government debt).
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
UK businesses, charities and public sector bodies are finally going to learn what support they will receive to help them through the energy crisis – but will it be enough?
The government is expected to announce a cap on wholesale gas and electricity costs for these groups today, in the second part of its energy price guarantee to cut soaring bills.
The plan, to be announced by business secretary Jacob Rees-Mogg, is expected to cut the rate for electricity and gas for non-domestic users by about 50% and 25% respectively, compared with current contracts.
It’s likely to cost tens of billions of pounds, depending how high wholesale energy prices remain.
Two weeks ago, Liz Truss promised ‘equivalent support’ for businesses and public sector organisations over the coming winter, when she announced the government would cap domestic bills at an average ?2,500 a year
But while those domestic cap runs for two years, the business support may only last six months for many firms.
The discounts are set to apply to contracts signed since April 1 this year, and would last for six months starting from October 1, Bloomberg reported last night.
That would help companies get through the winter crunch, but provide less certainty about the future.
Yesterday, pub chain Fuller’s revealed its energy bill was due to more than double this year, from ?8m to ?18m, without government support.
And business groups have warned that the UK faces a “lost generation” of traders, adding that a cap would not affect high standing charges imposed by suppliers.
As my colleagues Rowena Masonand Alex Lawson explain:
Suppliers would be able to impose their own charges on top and would be compensated for the wholesale price cap by the government.
This would be about 21p per kilowatt-hour for electricity and 7.5p per kWh for gas. There would be a different cap for those paying variable rates. Government sources said this was the most likely model and scale of energy bill support for businesses, without saying how much the total package would cost the Treasury.
Craig Beaumont, the chief of external affairs at the FSB, said: “If the government is going for a fixed wholesale price, tomorrow we need to understand how that will be applied to small businesses’ energy bills in practice. A small business will need to be told by their supplier, fast, what their new bill will be.
“However, there may be no regulation of the other major element of small business energy bills – the standing charge.
“While consumers will have their standing charge capped, small firms won’t, and that means energy providers could continue to hike standing charges, and so still mean small businesses seeing their energy bills spiral.”
We’ll also be watching the financial markets today, where investors are bracing for another hefty rise in US interest rates tonight.
Economists are predicting the US Federal Reserve will raise its benchmark interest rate by 0.75 percentage points, the third such rise in a row, and signal plans to raise rates again in the coming months.
The agenda
7am BST: UK public finances for August
9am BST: Government’s energy business support plan expected
11am BST: CBI industrial trends survey of UK factories
3pm BST: US existing home sales in August
7pm BST: US Federal Reserve interest rate decision
7.30pm BST: Federal Reserve press conference
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