Closing summary: Increased windfall tax 'not preferred option' of ministers
The UK government is in a tricky situation, with the prospect of genuinely enormous energy price rises for households but no leader able to commit to big policy actions.
Boris Johnson, still just about prime minister for another fourish weeks, tried to show he is gripping the issue by unexpectedly turning up at a meeting of energy company bosses on Thursday.
However, he told energy bosses that he is leaving any big decisions to his successor, the Treasury said.
The government has been careful to keep the option of further taxes on the table for the next prime minister, but it did not express much enthusiasm for more windfall taxes in the meeting, the Guardian’s Alex Lawson reports. An energy industry source briefed on the meeting said:
It was a constructive discussion about ways to support customers and accelerate investments in energy security in the UK. It was clear the windfall tax is not a preferred option for anyone – ministers or electricity companies.
Zahawi, who is widely expected to be demoted from chancellor by a new leader, said that energy firms agreed to “do more” to help the most vulnerable households with bills, but the Treasury did not provide details of what help that might be, or who it counts as the people who need more help.
Johnson also said that he wanted to see more investments from energy companies in renewable energy and biomass, but also added that he wanted firms to do more drilling of oil and gas in the North Sea.
Tomorrow we will get a first reading of how badly the UK economy was affected by the energy crisis in the second quarter of 2022, with the Office for National Statistics publishing GDP figures.
You can continue to follow our live coverage from around the world:
In UK politics, Suella Braverman was given £10,000 by climate sceptic for Tory campaign while Tom Tugendhat raised £120,000, records show
In our coverage of Russia’s war on Ukraine, the UK sets out further military support for Ukraine
In the US, the FBI has handed subpoenas to Republican lawmakers with Donald Trump quiet on the Mar-a-Lago search
Thanks for reading our live coverage of business, economics and financial markets as ever today. Do join me again tomorrow morning for the UK’s second-quarter GDP reading. JJ
We have pictures from inside the government’s meeting with energy bosses.
All of the photos are focused on outgoing Prime Minister Boris Johnson, so it is unclear which bosses attended in person and which were on a video call.
We also know of several other companies who joined the meeting (beyond those mentioned earlier). They were retailer provider Octopus Energy, oil trader Vitol, generator Intergen, renewables investor Greencoat Capital and lobby group Energy UK.
Updated
US producer price inflation slows
On the other side of the Atlantic the US is coping with its own inflationary pressures. The latest data today suggests those pressures might be easing – even if they remain strong.
The US producer price index, which measures what goods cost when leaving the factory gate, rose by 9.8% year-on-year in July, according to the US Labor Department. That is a steep increase, but less than the 11.3% recorded in June and the 10.4% that economists had expected, according to a Reuters poll.
The monthly figures also showed that the index actually fell by 0.5% month-on-month. Economists had suggested that the index would rise, so that counts as a genuine surprise.
Earlier this week the news that consumer prices remained flat in July sparked a relief rally on stock markets as investors entertained the hope that inflation may have peaked. That might mean that central banks do not have to raise interest rates and tip countries into recession, as is still widely expected.
But beware: US Federal Reserve officials last night said the battle against inflation is far from over.
Prime Minister Boris Johnson said he will keep urging the electricity sector to cut bills after meeting energy bosses today.
He asked the oil producers present to keep investing in North Sea oil and gas, citing the UK’s energy security.
Johnson, chancellor Nadhim Zahawi and business secretary Kwasi Kwarteng also stressed the importance of investments in renewables, biomass and nuclear energy.
Some of the discussions addressed how to lower energy bills, while Zahawi is understood to have told the meeting that the government was considering measures aimed at the “extraordinary profits” of some parts of the electricity generation sector.
In written comments after the meeting, Johnson said:
Countries around the world are feeling the impact of Putin’s damaging war in Ukraine. We know that this will be a difficult winter for people across the UK, which is why we are doing everything we can to support them and must continue to do so.
Following our meeting today, we will keep urging the electricity sector to continue working on ways we can ease the cost of living pressures and to invest further and faster in British energy security.
We are continuing to roll out government support over the coming months, including the second £324 instalment of the cost of living payment for vulnerable households, extra help for pensioners and those with disabilities, and the £400 energy bills discount for all households.
Updated
Energy companies to 'do more' to help most vulnerable - chancellor
Chancellor Nadhim Zahawi has said that energy companies who attended a meeting with him and Prime Minister Boris Johnson today agreed to “do more to help the people who most need it” – but did not detail what that would entail.
In a readout from the meeting Zahawi said the companies pledged to work “in the spirit of national unity”.
However, Johnson also told the meeting that it will be for his successor to make significant fiscal decisions, again ruling out significant policy action before 5 September.
Zahawi said:
This morning I hosted industry leaders from the electricity sector to discuss what more they can do to work with Government and act in the interest of the country in the face of rising prices caused by Putin’s illegal invasion of Ukraine.
We have already acted to protect households with £400 off energy bills and direct payments of £1,200 for 8m of the most vulnerable British families. In the spirit of national unity, they agreed to work with us to do more to help the people who most need it.
There is a notable absence from the list of people at the Downing Street meeting between ministers and energy bosses: big oil.
Neither of the UK’s “supermajor” oil and gas companies, BP and Shell, were among the chief executives in attendance.
Between them the two FTSE 100 oil producers made profits of $35bn (£29bn) during the first half of the year – much of it thanks to surging oil and gas prices following Vladimir Putin’s order for Russia to invade Ukraine.
BP talks about a “cash balance point” for the next few years of around $40 per barrel of Brent crude oil. That means that pretty much everything above that price is gravy. With Brent futures prices recovering to $98 per barrel on Thursday, the profits bonanza starts to be understandable.
Both Shell and BP say they need the profits to make genuinely large investments in renewable energy – solar energy provider Lightsource BP is a notable example.
Yet shareholder returns of $16bn this year from the two companies have far outweighed spending on zero-emissions energy. BP has committed to spending of $2.5bn this year on net zero-compatible energy.
• This post was amended on 12 August 2022. The boss of Lightsource BP did not attend the meeting as previously stated.
Updated
Prime Minister Boris Johnson also meeting energy company bosses
Prime Minister Boris Johnson has also joined the meeting of energy company bosses.
Johnson had not been expected at the meeting, but was a last-minute addition, it is understood.
The prime minister, who will be pushed out of office by 5 September, has been criticised for refusing to act to cut energy costs in recent months.
The meeting’s attendees cover a significant proportion of the UK’s electricity generation abilities. They also serve many of Britain’s households with gas.
EDF’s generators nuclear power stations generate about a fifth of the UK’s electricity. Centrica’s British Gas is the largest supplier of gas to UK households.
Some of the companies have also been among the big beneficiaries of the energy price spike. For instance, Centrica made operating profits of £1.3bn during the first half of 2022 thanks to higher prices for the oil and gas it drills.
Others have not fared so well. Gas distributor Uniper required a €15bn (£13bn) bailout from the German government after Russia cut back gas supplies to Europe.
France’s EDF Group is suing its own government for €8.3bn (£7bn) after it was forced by Emmanuel Macron’s administration to sell energy to consumers at a loss. The company is being wholly nationalised as part of France’s effort to minimise energy bills.
Energy bosses summoned to talks with ministers
The bosses of some of the UK’s biggest energy companies have started a meeting with the chancellor and business secretary who are expected to pressure them to invest in green energy rather than pay-outs for shareholders.
It is understood that attendees of the meeting this morning include Chris O’Shea, the chief executive of British Gas owner Centrica, Keith Anderson, the chief executive of Scottish Power, and Simone Rossi, the boss of EDF in the UK.
The government has the option of increasing taxes on energy companies, after belatedly introducing a windfall tax in response to the surge in energy prices that has driven inflation in the UK to a 40-year high.
However, neither chancellor Nadhim Zahawi nor business secretary Kwasi Kwarteng are thought to favour raising taxes further, and government sources briefed last night that the talks will focus on investments and ensuring security of supply.
There is a big question mark over whether investments in new projects can have any effect on the energy price increase expected over the winter. The consultancy Cornwall Insight said on Tuesday that it expected the UK’s energy price cap (the annual rate paid by an average household) to reach £4,266 for the first three months of next year.
The meeting this morning is also thought to include the bosses of Denmark’s Orsted, Germany’s Eon, RWE and Uniper, and Britain’s Drax and SSE.
• This post was amended on 12 August 2022. The boss of Lightsource BP did not attend the meeting as previously stated.
Updated
There is an arm wrestle ahead over regulation of the City of London. Earlier this week Conservative leadership race frontrunner Liz Truss signalled (in briefings to allies reported by the Financial Times) that she will bring in powers to “call in” financial regulatory decisions if they are too cautious.
Rishi Sunak previously said he would do something similar. That means both the candidates to be the next prime minister want to clip the Bank of England’s wings.
Bank of England governor Andrew Bailey has restated his position that government interference in regulatory decisions would be detrimental to the UK.
In a letter to the Treasury select committee (from 27 July, so before Truss jumped on the bandwagon) Bailey wrote:
Regulatory independence is important, not least because our international standing, and therefore the competitiveness of the UK financial sector which the reforms are aimed at enhancing, depends on it. Anything that would weaken the independence of regulators would undermine the aims of the reforms.
File under one to watch.
UK house sales expectations fall to lowest since pandemic lockdowns - surveyor poll
The UK housing industry’s expectations for the year ahead are the most downbeat since the first coronavirus lockdowns began in March 2020, according to a regular poll of chartered surveyors.
The balance of respondents believing prices will fall in the next 12 months rose to 36% in July, up from 21% in June, according to the Royal Institution of Chartered Surveyors (Rics).
Enquiries by potential new buyers dropped for the third consecutive month.
The surveyors blamed the prospect of higher interest rates and the cost-of-living crisis for the drop in demand: if borrowing is more expensive as the Bank of England battles inflation and people can save less then a fall in demand would not come as a surprise.
Yet one of the defining economic themes of the UK’s last decade has been the way that house prices have defied apparent economic gravity. Rics said “house prices continue to rise across the UK”, with a balance of 63% of respondents reporting that prices increased.
Tarrant Parsons, Rics’s senior economist said:
Amid a backdrop of sharply rising living costs, slowing economic growth and higher interest rates, it is little surprise that housing market activity is now losing some momentum. With monetary policy set to be tightened further over the coming months, sales expectations point to a further softening in transaction volumes going forward.
Nevertheless, with respect to house prices, limited supply available is still seen as a crucial factor underpinning the market. Although house price growth is likely to continue to ease, respondents still anticipate prices will be modestly higher than current levels in a year’s time.
Another sign that inflationary pressures in the US economy may have peaked: the average price of US retail gasoline fell below $4 per gallon on Thursday.
The national average price for regular unleaded petrol fell to $3.990 a gallon on 11 August, according to the American Automobile Association’s price tracker. That is down from $4.68 a month ago, and above $5 in mid-June.
Rising petrol prices have been an important part of the inflationary story around the world, as many people outside urban areas cannot avoid filling up their cars. It filters through to the price of almost everything else via businesses.
Fuel subsidies have been used in several countries to cushion the inflationary blow, although many economists and analysts say this can be counterproductive, as it encourages people to continue to buy more fuel. And rich households tend to spend more on fuel, so subsidies help them more.
A few more interesting points. Firstly, the American Automobile Association’s map of petrol prices is not a bad proxy for a US election map (albeit with the colour scheme swapped):
Secondly American petrol prices enjoy a huge implicit subsidy: prices are fundamentally lower than many other parts of the world. $4 per gallon – a pump price level that prompts howls of outrage in the US – equates to about 87p per litre in British money. That is less than half what British drivers pay, according to the RAC.
The FTSE 100 leaders this morning are Ladbrokes owner Entain and Coca-Cola Hellenic Bottling Company, both of which have given their shareholders positives amid a tricky macro environment.
Coca-Cola HBC, one of the biggest owners of a bottling franchise for US-based Coca-Cola, gained 3.6% after it forecast operating profits in 2022 similar to 2021 – even after reporting a €190m (£160m) hit from its Russian business, after it stopped selling Coke products following the invasion of Ukraine.
Gambling company Entain said it is buying a Croatia’s SuperSport Group bookmaker in a growth drive, and its profits (otherwise known as customers’ gambling losses) were up 20% on a year earlier. Its share price rose by 2.2%.
FTSE 100 flat as Federal Reserve officials say inflation 'victory' is far off
Good morning, and welcome to our live coverage of business, economics and financial markets.
Stock markets around the world have rallied after US consumer price index inflation slowed in July. However, Federal Reserve officials have done their best to emphasise that the world’s largest and most influential economy is not out of the woods yet.
The relief rally prompted by the slower inflation (which could imply less need for interest rate hikes to slow economic growth) continued in Asia overnight, with the Shanghai Stock Exchange Composite index gaining 1.5% and Hong Kong’s Hang Seng up 2.1%. In Europe the Stoxx 600 index gained 0.4% in the opening minutes of trading, but the FTSE 100 edged down.
Investors are trying to balance their hopes that inflationary pressures may be falling with the knowledge that the US Federal Reserve is still committed to increasing interest rates further, potentially triggering a recession. Falling inflation in the US would feed through directly to economies around the world, including the UK, where the Bank of England has already forecast a year-long recession.
Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, last night said the slower-than-expected US inflation reading was “welcome” news but did not alter his expectation that the US central bank would need to raise its rates to 3.9% by year-end and to 4.4% by the end of 2023. The rate is currently in the 2.25%-2.5% range.
The Fed is “far, far away from declaring victory” on inflation, Kashkari said at the Aspen Ideas Conference, Reuters reported.
Another official, San Francisco Federal Reserve Bank president Mary Daly, gave the Financial Times a similar message on Wednesday. She said:
There’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal.
We will have a further indication of inflationary pressures in the US later today, with the producer price index giving an indication of the prices manufacturers are charging.
The agenda
1:30pm BST: US producer price index inflation (July; previous: 11.3%; consensus: 10.4%)
1:30pm BST: US initial jobless claims (week ending 6 August; previous: 260,000; consensus: 263,000)
