Shell and British Gas face backlash over bumper profits

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29th July 2022

Bite-sized business news from the UK and beyond

Good morning Today marks two momentous pop culture events:
1. After 37 years and nearly 9,000 episodes, the final episode of Australia’s longest running soap opera Neighbours will air later today in the UK.
2. And at noon a High Court judge is expected to deliver a verdict on the infamous ‘Wagatha Christie’ case between football WAGs Colleen Rooney and Rebekah Vardy.

Today's stories

Energised: Shell and British Gas face backlash over bumper profits
The ‘R’ word: US (sort of) enters a recession

ENERGY
Shell and British Gas face backlash over bumper profits

What happened?
Yesterday energy giants Shell and British Gas owner Centrica reported steep rises in profits driven by soaring oil and gas prices.

How did we get here?
The reopening of economies post lockdown and the war in Ukraine has meant that in the past year the price of oil has doubled and gas prices have quadrupled.

This of course has been bad news for consumers who face record energy bills – set to rise to £4,000 this winter - and petrol prices near £2 a litre.

But for oil and gas producers, like Shell, and utility providers, like Centrica, this has resulted in enormous profits.

Shell reported record profits of $11.5bn in the three months to June, more than double compared to the same period last year and a new quarterly record.

Centrica posted £1.3bn of profits in the first half of 2022, five times higher than last year. The UK’s biggest energy provider also announced that it would restart paying dividends to shareholders again after a two year hiatus.

Record profits and payouts to investors amid a cost of living crisis leaves the energy firms in an awkward position.

“It’s difficult to say the word profits or dividends or other similar words when people are having a tough time right now,” Centrica boss Chris O’Shea said.

But the government has already taken some action
Boris Johnson’s government brought in a windfall tax that only began this month, making yesterday’s profits the last before that regime begins. The £5bn expected to be raised is going to help government support struggling households.

But suggestions that the tax could be extended were dismissed by Liz Truss, the frontrunner to be the next prime minister, who told reporters now is “not the time for another windfall tax”. The argument is that further taxes would discourage investment in renewable energy sources which is ultimately the long term answer to less volatile energy prices.

Other stories to keep you in the loop

Rise of Omicron subvariants sends UK staff absence soaring
Barclays profits almost halved to £1.5bn after US trading blunder
Apple and Amazon beat expectations but still see profits slip as inflation bites
BT staff prepare to strike despite best pay deal in 20 years
City salaries rocket to £185,000 for newly-qualified lawyers in war for talent
Nestle reports higher sales even as it raises prices

US
US (sort of) enters a recession

Yesterday official data showed that the US economy shrunk by 0.9% in the three months to June, after falling 1.6% in the first quarter of the year.

Two consecutive quarters of negative growth meets the textbook definition of a recession which many countries use.

However the world’s largest economy chooses instead to rely on the National Bureau of Economic Research, a group of academics, which uses a wider range of factors including employment and income rates. The NBER is yet to pass the recession judgement.

Entering a recession, a period of lower economic activity, is generally in tandem with lower household incomes and investment and higher unemployment. So it’s no surprise that the US government and policymakers are keen to avoid using the dreaded ‘R’ word:

President Biden is facing low approval ratings and has focused on economic measures like high job growth as the key achievements of his administration.
On Wednesday the US central bank raised its base interest rate by 0.75% for the second consecutive month in a bid to cool down inflation running at 9.1%, a 40-year-high. Falling into a recession could mean the bank is less likely to raise rates again -and get inflation under control - as it could risk slowing down the economy even further by increasing the cost of borrowing, a so-called ‘hard landing’.

The US is not alone in facing a combination of high inflation and low or negative growth – aka stagflation. Earlier this week the IMF issued a gloomy report that the global economy is on the brink of a recession and that the UK is forecast to have the weakest growth of the seven richest nations next year.

Stat of the day

UK homes are pricier than ever and now cost 8.7 times the average annual household income

Interesting links from around the web

The pandemic impulse purchases we grew to hate
How to navigate multiple job offers and buy yourself time to decide
The 16-part plan to be the next Tory leader

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Shell and British Gas face backlash over bumper profits

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