Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain’s cost of living crunch will give the Bank of England much to ponder today as the central bank meets to set interest rates.
Yesterday two energy companies failed, affecting another 800,000 households, as ministers admitted they were considering a windfall tax on companies profiting from record gas prices.
Avro Energy, with 580,000 household customers, became the biggest energy supplier to fail and Green, which has 255,000 customers, also ceased trading – meaning more households will face higher energy bills within weeks.
Around 1.5 million households now face being transferred to new suppliers — probably on a higher tariff, meaning they could face paying hundreds of pounds more for their gas and electricity per year.
As we report this morning:
Pressure is mounting on ministers to find ways of providing some financial support for households, which are due to be hit with a £139 increase in bills next month – some of the most expensive energy bills on record.
Combined with the £20 universal credit cut and rising inflation, Labour and some Tory MPs have warned of a potentially catastrophic cost of living crisis.
On Wednesday, the Joseph Rowntree Foundation estimated a typical low income family would be £1,750 worse off by next April.
The energy market shock has also raised concerns for the UK’s struggling consumer supply chains and heavy industries such as steel, reigniting fears of empty supermarket shelves ahead of Christmas and a return to a three-day week for factories.
Green’s chief executive, Peter McGirr, told the Guardian there would be a “tsunami of more [collapses] to come” because small suppliers do not have deep enough pockets to weather the surge in costs without passing them on to their customers.
“We’re an independent company.
“It’s hard to access finance and nothing has been done to help.”
He added that the crisis talks held last weekend by the business secretary, Kwasi Kwarteng, had failed to include the smaller suppliers that are most vulnerable to the energy market shock and said his company’s calls for help from the industry regulator had “fallen on deaf ears”.
So this all gives the Bank of England a headache, as policymakers consider whether to continue with its QE stimulus programme, and when it might need to raise interest rates to calm inflation.
Inflation soared over the Bank’s target last month, to 3.2%, and is expected to keep climbing.
While surging energy prices will push inflation up, the squeeze on household budgets means a rise in borrowing costs would be painful.
Rising prices in the shops, the imminent £20/week cut to Universal Credit, and the end of the furlough scheme next week means many families face a cost of living crisis this winter.
New estimates from the Joseph Rowntree Foundation, seen by the Guardian this week, found a typical low-income UK family will be £1,750 worse off by April 2022 as factors combine into a spiralling cost of living crisis.
So the BoE is expected to leave borrowing costs at record lows at noon today – while the minutes of the meeting will show whether its Monetary Policy Committee is concerned about the economic situation.
Deutsche Bank analysts expect ‘no change’ today, but they also expect the BoE to reaffirm that some tightening will be needed over the next few years to keep inflation in check.
Yesterday, the BoE’s counterparts in America said they could start ‘tapering’ their stimulus programme soon, and end the bond-buying programme up by next summer.
The Federal Reserve left interest rates unchanged at near zero after its latest meeting. Rates were cut in March 2020 as the US economy reeled from the impact of the pandemic. But the Fed also indicated it may soon start pulling back on the $120bn in monthly asset purchases program that it started when the coronavirus hit the US.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the Fed’s post-meeting statement said
Also coming up today…
New surveys of UK, eurozone and US companies will show how the energy price squeeze, commodity shortages and record vacancies are hitting firms.
Investors are also watching the Evergrande crisis, as the Chinese property developer faces a key debt interest payment due today. Yesterday it struck a deal over another debt, on a domestic bond, which has reassured markets somewhat – with stock markets expected to rise.
- 9am BST: Eurozone ‘flash’ purchasing managers survey for September
- 9.30am BST: UK ‘flash’ purchasing managers survey for September
- 12pm: Bank of England interest rate decision, and MPC minutes
- 1.30pm BST: US weekly jobless claims figures
- 2.45pm BST: US ‘flash’ purchasing managers survey for September