Cap that no longer fits: With energy prices likely to only climb higher, consumers will face higher bills every three months, ALEX BRUMMER warns
Now we’ve heard it personally from Governor Andrew Bailey.
The reason why the Bank of England’s inflation forecast was so wrong, escalating from 4 percent a year ago to a peak of 13.3 percent this fall, is due to the war on Ukraine and its impact on energy prices. No one, he says, could have foreseen that.
In response to the oil and gas price shock, the regulator Ofgem is updating the operation of the price cap, which determines most household bills.
‘Unforeseen circumstances’: Bank of England governor Andrew Bailey says the reason inflation forecast was so wrong is due to war on Ukraine
Gone are the days when consumers could go to comparison sites and choose the cheapest offer. Switching has become an unreliable business with some 30 energy suppliers, many of them poorly managed and poorly regulated, so far out of business. Most customers have been transferred to other suppliers.
The new plan for Ofgem is to adjust the cap every three months instead of every six months. In other circumstances this could have been popular with consumers.
Instead of the so-called rocket-and-spring effect, where higher prices are passed on immediately and lower prices are delayed, changes in the wholesale market will be passed on more quickly.
Indeed, long before the Ukraine conflict, Ofgem discussed such a change and even considered monthly changes.
The unfortunate implications of a three-month limit change at this point is that consumers will face both October and January.
No wonder angry households are joining the social media-driven ‘Don’t Pay UK’ movement.
It’s hard to imagine energy prices getting anything but higher as Europe approaches winter, demand intensifies and Vladimir Putin chooses to play hard.
Although the UK only gets 4% of its energy from Russia – most of us come from Norway, the North Sea and Qatar – no one has so far devised a system that separates us from global markets.
With wholesale gas prices some seven times higher than a year ago, the residential ceiling in October is expected to be 70 percent higher at £3,359, with another jump in January.
The pain will be terrible and no one should underestimate the impact on the poorest households. But as HM Treasury has pointed out, consumers are not left without help.
There is an instant payment of £1,200 available for the most vulnerable households and we all get a £400 discount.
Should bills rise again in January, no government will be able to resist digging deeper to help. In Europe, ‘self-help’ has started, with air conditioning units reset to higher temperatures, hot water thermostats turned down and lights turned off earlier in shops and offices. All of this will serve the carbon reduction agenda.
Prime Minister Liz Truss’ favorite is against the windfall tax on big oil’s ATM. She may eventually be convinced that recycling some of this money is the only sensible choice for the less fortunate.
The tax can be rolled back quickly if and when gas and fuel prices start to spiral out of control.
When former Glencore chief executive Ivan Glasenberg stated that his commodities trading and mining group would not follow the example of other miners, such as Rio Tinto, by selling its coal assets, it seemed an odd decision.
His argument was that it would be better for a licensed mining group to gradually and responsibly expose the assets in public rather than sell them out of sight and mind to a third party.
How smart does that look. With such a scarce supply of energy, coal prices have skyrocketed and nearly half of the group’s first half profit of £15.2 billion has been generated by the black stuff.
Germany is one of the countries that have switched to burning coal.
The result for shareholders, who have remained loyal despite Glencore’s immense ethical and legal challenges, has been a massive payout in dividends and buybacks worth £7 billion for the year.
And the outlook is good with the group’s exposure to sought-after ‘green’ metals such as copper, cobalt, nickel and zinc. Quite a throwback to new boss Gary Nagle.
Savers in BlackRock’s £8 trillion in funds could not help but feel a little sickened by the decision to allow struggling crypto exchange Coinbase on its Aladdin technology investment platform.
Not quite what you’d expect from Larry Fink’s politically correct approach to investing.