Government delays Halloween economic announcement

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27th October 2022

Bite-sized business news from the UK and beyond

Good morning How cold is too cold to be inside? As winter approach, many households are switching on their heating in preparation for the colder temperatures. But with energy bills at record highs the cost of heating your home is at the forefront of people's minds. According to Public Health England and the World Health Organisation an indoor temperature of 18C is the minimum.

Today's stories

Government delays Halloween economic announcement
European gas market takes surprising turn

ECONOMY
Government delays Halloween economic announcement

What happened?
Yesterday the prime minister Rishi Sunak announced that next Monday’s fiscal statement would be delayed by two weeks. The new PM and chancellor Jeremy Hunt agreed that they need more time to make the “right decisions” on managing the economy.

How did we get here?
In the past six weeks the date of the fiscal statement – where the government sets out its tax and spending plans – has been moved twice. First it was moved forward from 23 November to 31 October in order to calm financial markets in the wake of the disastrous mini budget.

The judgment taken now is that it can wait until 17 November as the markets have welcomed the appointment of Sunak and the reversal of most of the unfunded tax cuts in the mini budget. The yield or interest on 30-year government bonds – which spiked during Liz Truss’ premiership - yields have now fallen back to their level before the mini budget. It's estimated that the lower yields will save the government up to £10bn in interest payments.

The chancellor said it would allow the Office for Budget Responsibility (who were excluded from inputting into the mini budget) to deliver more accurate forecasts about the state of the public finances and give better projections for economic growth. The government will identify the size of the black hole it needs to fill, and how it's going to fill it.

The delay has knock on effects for the Bank of England
The Bank of England will now make its next interest rate decision on 3 November without guidance on the direction the government is setting for the economy. It’s widely expected that the Bank will increase rates for the eighth time in a row since last year to tame 40-year high inflation.

However the chancellor says the Bank is happy enough with the government’s direction of travel to allow for the delay. Markets also seemed content with the pound reaching above $1.16 for the first time in six weeks.

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ENERGY
European gas market takes surprising turn

What happened?
Natural gas prices in Europe have plummeted by 70% since August highs, thanks to stockpiling efforts and an unusually warm autumn.

How did we get here?
Europe is the world’s biggest importer of natural gas, a fossil fuel used for electricity and heating. Since Russia invaded Ukraine in February securing gas supplies has been a major priority for European governments looking to wean themselves off Russian imports.

Only a few weeks ago wholesale gas prices were surging, leading to predictions of blackouts, rationing and people unable to heat their homes.

Throughout August, analysts produced forecasts which showed eye-watering energy prices throughout winter and spring. Governments reacted by announcing costly schemes to cap prices for consumers.

But since then wholesale gas prices have dropped
EU countries filled up their gas reserves to over 90% of capacity after an aggressive global buying spree. The latest phenomenon is ships full of gas queuing off European coasts waiting to unload their cargoes – and being kept waiting because there is a shortage of storage space and facilities to unload.

Demand has also come down due to consumers being more careful with their energy usage in reaction to higher prices and governments cutting back on use. The EU has agreed to try to reduce consumption by 15% this winter. Energy-hungry plants like steelworks have been ordered to lower production. It also helps that western Europe has enjoyed an especially mild October.

The big question is what happens next
A sustained drop in energy prices would help reduce inflation in Europe and keep money out of Russia. But experts believe the price drop could be a blip as Russia continues to restrict gas flows and demand picks up in Asia, post-pandemic-lockdowns.

Stat of the day

California's economy is set to overtake Germany's, which would make it the fourth largest in the world were it an independent country

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Government delays Halloween economic announcement

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