Newsletter 5 September 2022

Russia's pipeline shutdown might raise gas prices

Rising energy costs are causing UK industries to slash output and jobs.

After Russia shut down a crucial pipeline to Europe, analysts predict gas prices to soar due to decreased Russian gas deliveries; several observers say European prices have climbed 400% in a year.

Russia supplied 4% of Britain's gas and 8% of its oil. After the invasion of Ukraine, Britain is no longer buying energy from Russia for the first time on record.

While the UK is less reliant than nations like Germany, European wholesale markets affect British pricing. European officials accuse Russia of weaponizing energy supplies surrounding the Ukraine incursion, while Moscow blames sanctions and technical concerns.

Gazprom was anticipated to restore flows at 20% following the most recent suspension, causing Dutch TTF gas prices to decline by roughly 40% from the record high on 26 August, closing at little over €200 (£173) per megawatt hour on Friday.

Record electricity costs related to soaring gas prices have caused several energy-intensive companies, notably fertiliser and aluminium producers, to cut output and spurred EU governments to invest billions into family assistance programmes.

13% of the businesses surveyed said they limit hours or skip output amid high energy costs, 7% stop production for long periods, and 13% cut jobs.

 The pound's largest monthly loss since 2016

In August, worries about the UK economy caused the pound to fall 5% against the dollar.

In October 2016, when the UK decided to exit the EU, the pound plummeted against the dollar. Analysts say the drop indicates the economy's worsening outlook, increasing costs and energy expenses.

August was the worst month ever for UK government bonds. Investors fretted about government loans and therefore expected bigger returns. In August, the bond rate increased the most since 1994.

The cost-of-living problem is the new prime minister. Major challenge. Rishi Sunak and Liz Truss are under pressure to detail how they will help families if they win.

The Resolution Foundation predicts that disposable family earnings will decline by 10%, or £3,000, this year and next.

The Bank of England increased interest rates to 1.75 percent in August, predicting a recession this year.

Analysts say a strong dollar also affects the pound. The dollar is strong owing to rising US interest rates and investors seeing it as a safer option.

Last week, the Federal Reserve hinted it would raise interest rates further to manage inflation.

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