Mon. Jun 27th, 2022

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The UK’s cost of living crisis is centre stage today as the Bank of England sets interest rates, energy regulator Ofgem reveals probably the biggest ever rise in energy bills in Great Britain, and the government announces support to cushion the blow.

With UK inflation at a 30-year high of 5.4%, the BoE is expected to lift interest rates to 0.5% at noon, following December’s rise to 0.25%.

By hiking rates again, the central bank hopes to cool price rises, at a time when energy, food and goods prices have all risen, eating into family budgets.

A rate rise would push up the cost of credit, hitting borrowers and pushing up the cost of tracker mortgages, for example.

The Bank is also expected to revise its inflation forecasts higher, recognising that the cost of living squeeze is more intense. It could also signal how it will unwind its pandemic stimulus, including a gradual reversal of its huge bond-buying plan.

The Bank faces a balancing act, with inflation overtaking wage growth in November, and tax rises coming in April.

As analysts at Nomura explains:

The combination of rising inflation, more limited increases in wages, higher taxes and expectations of rising interest rates are creating a perfect storm for UK households, who are experiencing what’s been widely termed a “cost of living crisis”.

The bad news is that real pay could fall by around 2% this year (and real disposable incomes, taking into consideration the aforementioned costs, by more – possibly around the -3% mark), a similar decline to the worst annual falls we saw in the aftermath of the global financial crisis.

The cost of living crisis will intensify in April, when the cap on energy bills on millions of homes in Great Britian increases to reflect the surge in wholesale gas and electricity costs.

Ofgem has brought forward its announcement on the cap to 11am this morning, to coordinate with the government as it scrambles to put together a package of support.

Analysts expecting the average bill will surge by as much as 50% — to nearly £2,000 a year, up from an average of £1,277 this winter.

That will put a painful squeeze on struggling households, pushing more into energy poverty.

The number of households suffering from “fuel stress” – those spending at least 10% of their family budgets on energy bills – will rise to 6.3m overnight once the cap rises, the Resolution Foundation warned last month.

The Treasury will try to soften the blow; The Guardian understands it is considering “broad-brush financial support” as well as extra payments for vulnerable customers who will be hit hardest by the price cap increase.

That could include multi-billion loans to energy companies, which they could then use to cut energy bills by around £200 per year.

However, that would only take the edge off the likely surge in energy bills. And it would mean bills were higher in future years, as the money would need to be paid back.

According to the Times, chancellor Rishi Sunak will commit to giving households in council tax bands A to C rebates funded by Government grants under targeted measures for poorer households.

Sunak is due to outline the Treasury’s plans at a press conference this afternoon.

Steven Swinford
(@Steven_Swinford)

Sunak will acknowledge people will still face big hikes in energy bills

Tomorrow’s choreography:

11am Ofgem announces bills to rise by 50% to £2000

1100 Sunak announces Govt interventions in Commons

1200 BoE interest rate announcement + inflation forecast

1700 Sunak presser


February 2, 2022

BBC News (UK)
(@BBCNews)

Thursday’s Times: “Millions of families to get cuts in council tax” #BBCPapers #TomorrowsPapersToday https://t.co/7FuHsAa3Vz pic.twitter.com/BaNVau1srp


February 2, 2022

The stakes are very high; Citizens Advice warned yesterday that the number of people seeking one-to-one crisis support, such as referral to food banks and advice on emergency one-off grants, reached its highest level on record last month.

Meanwhile in the financial markets, tech stocks will be under pressure after Facebook’s earnings disappointed investors last night.

Shares in Meta slumped by over 20% after it reported higher costs and slowing growth, with users spending more time on rivals such as TikTok instead:

The agenda

  • 9am GMT: Eurozone services PMI for January
  • 9.30am GMT: UK services PMI for January
  • 11am GMT: Ofgem announces changes to energy price cap
  • Noon GMT: Bank of England sets interest rates
  • 12.45pm GMT: European Central Bank sets interest rates

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Wizadclick | WAC MAG 2022