Aurelia Butler

The UK energy regulator has lowered the energy price cap by almost £1,000 for a typical home, but consumers will still end up with higher bills from April as the government reduces subsidies to households.The price cap, which normally governs the amount paid for gas and electricity bills for typical usage, will fall to £3,280 from April having previously stood at £4,279 for the January to March period, Ofgem announced on Monday. The drop partially reflects the significant decline in wholesale gas and electricity prices in recent months, with a further fall in the cap expected later in the year as lower costs to utilities start to feed through to bills. The regulatory change will provide no relief for households, however, as the government is set to sharply reduce the amount of support it has provided.Its energy price guarantee (EPG), which was put in place last October to limit typical bills to £2,500 over the winter months when energy use is highest, is set to rise to £3,000 from April. An extra £400 direct subsidy paid in six monthly instalments since October will also end.Ofgem’s price cap determines the amount of subsidy the government has to provide above the level of its guarantee. Energy analysts are forecasting that from June the cap will fall below the level of the government’s price guarantee, at which point households with average usage will switch to paying that amount.“Although wholesale prices have fallen, the price cap has not yet fallen below the planned level of the energy price guarantee. This means, that on current policy, bills will rise again in April,” said Ofgem chief executive Jonathan Brearley.“However, today’s announcement reflects the fundamental shift in the cost of wholesale energy for the first time since the gas crisis began, and while it won’t make an immediate difference to consumers, it’s a sign that some of the immense pressure we’ve seen in the energy markets over the past 18 months may be starting to ease.”Poverty campaigners have called on Jeremy Hunt, the UK chancellor, to keep the guarantee at £2,500 until the summer, pointing out that the cost of government’s energy support package has come in lower than forecast as wholesale prices have fallen.Cornwall Insight, a consultancy, estimated the cost to the taxpayer of extending the £2,500 price guarantee to the end of June at about £2.5bn. It put the total cost of the scheme at £26.8bn if the government cut support as planned, rising to £29.4bn if the guarantee remained at £2,500.But the Treasury has so far shown no sign of reversing course as it does not want to expose itself to the possibility that wholesale prices start to rise again.Citizens Advice warned that the loss of government support would result in the number of households struggling to pay their bills doubling to one in five from the end of next month.“Without further support from the government, this April will spell catastrophe for millions of households,” said Citizens Advice chief executive Clare Moriarty.“The government must keep the EPG at its current level of £2,500. Recent drops in wholesale prices mean they have the headroom to do this. The alternative is millions more people unable to keep their house warm and keep the lights on,” she added. Consumer champion Martin Lewis, who has also called for the price guarantee to remain at £2,500, said that “reading the runes” he believed the government could still reverse course.“It seems to be an act of national mental health harm to send millions, almost everybody, a letter saying your energy bills are going to go up 20 per cent again when they’ve already more than doubled, just for the sake of three months,” Lewis told ITV’s Good Morning Britain. Lewis’s campaign is backed by Energy UK, the industry trade body, as well as dozens of charities.Cornwall predicted Ofgem’s price cap would fall to about £2,100 in the last six months of this year, though forecasts further out are more volatile and could change depending on the direction of wholesale prices. Prior to the energy crisis the price cap usually hovered around £1,200.The price cap does not limit how much consumers can pay if they use more than the typical amount of energy, so larger households generally pay more. More

The result suggests a slowdown that is likely to gain momentum in a scenario of high borrowing costs following the aggressive monetary tightening implemented by the central bank to curb inflation.Outstanding loans fell to 5.3 trillion reais ($1 trillion) in January, with loans to companies decreasing by 2.4%, while credit to families rose by 1.1%. Over the past 12 months, total credit expansion was 13.6%, down from 14.0% in the previous month.Bank loans in Latin America’s largest economy have decelerated amid more expensive credit, as the country’s benchmark interest rate stands at 13.75% from a record low of 2% in March 2021. This has prompted constant criticism from the new leftist President Luiz Inacio Lula da Silva and his political allies, who see the level of interest rates as unjustifiable given slowing inflation, which reached 5.63% in Mid-February.The central bank has left interest rates unchanged since September, but data from the central bank shows that average interest rates on non-earmarked loans have increased to 43.5% per year from 41.7% in December. Bank lending spreads also grew from 28.7 points the month before to 30.6 percentage points, while a broad measure of Brazilian consumer and business default ratios increased to 4.5% from 4.2% in December.($1 = 5.1889 reais) More

KYIV (Reuters) – When Russia invaded Ukraine a year ago, the shelves of the Novus supermarket chain in Kyiv quickly emptied as its supply chains – domestic and overseas – collapsed. Fresh produce became scarce and panic buying spread.Oleksiy Panasenko, deputy director general for operations at the popular outlet, recalls how the business reeled before Novus, like many other large retail chains, managed to adapt.”On the second day (of the war), there was already fighting on the outskirts of Kyiv,” he told Reuters. “In February and March, our shops became more than a place to buy food: they were a place to meet, to communicate; so-called islands of stability.”And when Ukrainian troops forced Russia’s army to retreat from the capital in the spring, the retail sector and the broader economy rebounded.Data from Ukraine’s European Business Association – which groups over 1,000 foreign and Ukrainian businesses – showed that by the end of May 47% of their members had fully restored operations and another 50% were working with some limitations.But then missile attacks began in October, dealing Ukraine a hammer blow. Russia struck at power grids and sub-stations across the country, leading to outages during the freezing winter and hitting heavy industry hard.The economy shrank by a third last year, the largest fall since Ukraine’s independence from the Soviet Union in 1991. Before Russia’s invasion, annual economic output had topped $200 billion.As the war enters its second year with no sign of slowing, the challenges are formidable. Reuters canvassed seven economists whose forecasts for 2023 ranged from a sizeable – though far less dramatic – decline of 5% in gross domestic product (GDP) to a small expansion. Access to reliable power will be a major obstacle. While many businesses are finding ways to cope with war, those that cannot run on generators alone will struggle this year, according to the economists, two government officials and executives from two private companies. ArcelorMittal (NYSE:MT) Kryvyi Rih, Ukraine’s largest steel mill, said its production was currently at about 25% of pre-war levels amid electricity blackouts. “We see small and medium-sized businesses adapt fairly quickly to power shortages by purchasing generators, batteries, and other equipment, while infrastructure damage remains moderate,” said Olena Bilan, chief economist at Dragon Capital investment house, whose forecast was the most negative among the economists surveyed.”If this situation persists, the fall in GDP in 2023 will not be as significant as we expect. But our forecast also envisages an end of the war’s hot phase at the end of third quarter of 2023,” said Bilan.She added that because of international support for Ukraine, it was “realistic” to expect its forces to continue to win back territory occupied by the Russians.Russian President Vladimir Putin has said the war is going according to plan, and casts it as a “special military operation” to protect Russia’s own security.Ukraine’s central bank predicts GDP will grow by 0.3% this year, while the economy ministry forecasts 3.2% growth.HUGE TOLLBy last summer, Ukrainian officials had already started sounding more confident about the country’s economy, in particular after a UN-brokered grain export deal.The agreement saved Ukraine’s agriculture, which accounted for about 12% of GDP and some 40% of overall exports before the war. As of mid-February, Ukraine’s grain exports for the 2022-2023 season – which runs July to June – had fallen 29.3% year-on-year to 29.7 million tonnes. A massive increase in military spending, including army wages, has also provided a boost to the economy, said Vitaly Vavrishchuk, head of research at ICU investment house. Ukraine spent 1.5 trillion hryvnias ($40.6 billion) on its defence sector in 2022 – equivalent to around one-third of its economic output – according to the National Security Council.That was around five times higher than its planned pre-war defence budget. Tens of billions of dollars in foreign assistance have poured in, both to help plug the budget deficit and arm Ukrainian forces. But despite the positives, Ukraine is well behind where it was before the war began. And the economic toll is staggering.The invasion destroyed schools, hospitals, ports, roads and bridges. The Kyiv School of Economics estimated the damage to infrastructure due to the war at $138 billion as of December. Poverty rates have soared and the budget deficit is forecast to hit $38 billion in 2023 following a collapse in tax revenues. The government is depending on Western aid to cover it – most of it from the United States and the European Union.”Ukraine’s government took measures that helped to reduce the monthly deficit in 2023 to $3-3.5 billion, which is still a huge figure,” Finance Minister Serhiy Marchenko said, noting there was also a need for infrastructure investment to fuel a recovery.President Volodymyr Zelenskiy’s government has called on donors to start planning for the massive task of reconstruction this year, though it recognizes large scale building will be difficult until some peace returns.Between 40% and 60% of the energy sector has been damaged, according to Marchenko, who said at a recent roundtable in February that he could often hear attack drones buzzing above his house or the building of his ministry.Business events are often held in underground shelters for security. Blackouts are regular. Novus’s Panasenko said the company lost about 30% of the stores’ opening hours in Kyiv in December and some 20% in January. The steel sector, a key pillar of the economy, is among the hardest hit. Ukraine was the world’s 14th largest producer of steel before the war.Two leading steel producers, Azovstal and MMK Illicha in Mariupol, were destroyed and are officially bankrupt.Those that remain are struggling with power outages.”Blackouts for companies like us are a big issue,” Mauro Longobardo, general director of ArcelorMittal Kryvyi Rih. The company recently started to import electricity, but the costs were high. He did not provide further details. Ukraine’s electricity system is connected to the European grid, where prices are higher, and it has imported energy from neighbouring Slovakia. Energy deficits are not the only challenge for ArcelorMittal.Its warehouse in Kryviy Rih, some 400 km (250 miles)southeast of Kyiv, was hit by three Russian missiles in early December and one worker was killed, Longobardo said.ArcelorMittal’s mining facility in a recently liberated area was strewn with landmines and most of the related infrastructure damaged.Logistics are another headache for the company, which used to export up to 80% of its output. Russia blocked Ukraine’s Black Sea ports and Longobardo had to work on new export routes through Poland.Despite the challenges, ArcelorMittal, Ukraine’s biggest foreign investor, is committed to stay.The largest employer in Kryviy Rih, the birthplace of Zelenskiy, it has kept its 26,000 employees on the payroll despite a production fall. Longobardo said ArcelorMittal would invest $130 million this year. Such plans are rare now.The outlook for some other sectors is more positive.Economy ministry data showed Ukraine imported 669,400 generators last year, including over 300,000 in December alone. Panasenko said 52 out of Novus’s 82 stores were already equipped with generators.ICU’s Vavrishchuk saw the economy continuing to adapt, and sectors with high state financing would benefit the most. But obvious security risks were deterring private investments, crucial for a robust recovery.Ukraine has a mixed record on attracting foreign private investment. In 2021, it ranked as the second-lowest country in Europe on Transparency International’s Corruption Perceptions Index, behind only Russia. Vavrishchuk said the country would need to enforce the rule of law, ensure transparency and fair competition.”Participation in the post-war reconstruction could be attractive for investors,” he said. “But still we will have to address all those issues (transparency and corruption) that we have not had time to before the war began.” More

Investing.com — Warren Buffett blasts the new buyback tax as Berkshire Hathaway’s performance sags under pressure from last year’s market volatility. Pfizer is reportedly in talks to buy Seagen for around $30 billion. Benchmark Eurozone bond yields hit a 12-year high as the market pushes out its expectations for the first cut in ECB interest rates. The U.K. and EU are on the verge of settling their differences over Northern Ireland, and potentially triggering another civil war in the ruling Conservative Party, and oil prices fall as Bank of America analysts slash their forecasts for the year. Here’s what you need to know in financial markets on Monday, 27th February.1. Buffett blasts buyback tax as Berkshire stumbles in 2022Warren Buffett laid into the Democrat-driven introduction of a tax on stock buybacks, in an uncharacteristically brief letter to Berkshire Hathaway (NYSE:BRKa) shareholders published over the weekend.Buffett said the measures, which aim to raise $74 billion in tax over the next decade, were the brainchild of “economic illiterates” and “demagogues”, and argued that buybacks were an essential tool in the efficient deployment of capital.Berkshire’s fourth-quarter earnings, disclosed at the same time showed an 8% drop in profit, as a number of clunkers in its portfolio underperformed, most notably auto insurance group Geico, which posted a sixth straight quarterly loss.Berkshire’s portfolio registered a loss of nearly $23B last year due to overall market volatility. Its cash pile rose to over $128B as of the end of the year.2. Bund yields hit 12-year high on Lagarde, Visco commentsMarket participants aren’t only pricing in higher interest rates for longer in the U.S. The yield on the benchmark German 10-year bond – the risk-free reference asset for the Eurozone – rose to a 12-year high of 2.58% after European Central Bank President Christine Lagarde hammered home the message that a 50 basis point hike in the ECB’s key rates in March is all but nailed on.Lagarde told the Economic Times of India that “There is every reason to believe that we will do another 50 basis points in March,” adding that what follows will depend on economic data.Over the weekend, Italian central bank governor Ignazio Visco – typically one of the more dovish members of the bank’s governing council – had acknowledged that the ECB’s key rate may have to rise as high as 3.75%, validating the upward move in implied forward rates after last week’s strong U.S. inflation data.ECB chief economist Philip Lane is due to speak at 12:00 ET (17:00 GMT).3. Stocks set to open higher; Pfizer reported in talks to buy SeagenU.S. stock markets are set to open a little higher later after falling to their lowest weekly close of 2023 to date on Friday. S&P Dow Jones Global Indices expects U.S. buybacks to top $1 trillion this year for the first time in history.By 06:45 ET (11:45 GMT), Dow Jones futures were up 120 points, or 0.4%, while S&P 500 futures were up 0.5% and Nasdaq 100 futures were up 0.6%.Stocks likely to be in focus later include Pfizer (NYSE:PFE) and Seagen (NASDAQ:SGEN), with the pharma giant reportedly in talks to buy the cancer drug specialist for around $30B.Also of interest could be Union Pacific (NYSE:UNP), whose stock surged after it said it’s looking for a new chief executive. 4. U.K. and EU hatch N. Ireland dealThe U.K. and European Union appear on the verge of a deal that would settle their simmering dispute over the status of Northern Ireland, an issue which has plagued the Brexit process ever since the U.K.’s vote to leave the EU in 2016.European Commission President Ursula von der Leyen is due in London to hammer out the details with Prime Minister Rishi Sunak.Settling the issue could help the gradual rehabilitation of U.K. financial assets with international investors, who have applied a huge discount to them since 2016. However, it also risks triggering one of the ruling Conservative Party’s periodic bouts of infighting, at a time when the October fiasco of then Prime Minister Liz Truss’s tax cuts are still fresh in the memory.5. Oil falls as BofA cuts forecastsCrude oil futures suffered a poor start to the week, after Bank of America (NYSE:BAC) analysts cut their estimate for average U.S. crude prices this year to $88 from $100 in the face of a weakening U.S. and global economy.They also noted that Russian oil is continuing to flow to world markets despite the heavy discounts imposed on it due to western sanctions. Russian pipeline operator stopped crude flows to Poland through the Soviet-era Druzhba (Friendship) pipeline on Monday, citing paperwork irregularities.By 06:45 ET, U.S. crude futures were down 0.2% at $76.17 a barrel, while Brent was down 0.3% at $82.59 a barrel. Natural gas prices continued to normalize, rising 3.4% to $2.634 per mmBtu. More

LONDON (Reuters) -Britain’s opposition Labour Party leader said on Monday he expects his party to back a new deal on post-Brexit trading arrangements for Northern Ireland, and he set out plans for the economy while warning that the country may soon be poorer than eastern European nations.Prime Minister Rishi Sunak is expected to announce a new deal on post-Brexit trade rules for Northern Ireland on Monday after a meeting with visiting European Commission President Ursula von der Leyen.Despite not having seen the details of the government’s deal to resolve tensions caused by the 2020 post-Brexit arrangements governing the British province, Labour leader Keir Starmer said any agreement would be an “improvement”.Answering questions after a speech on the economy in central London, Starmer said he believed it is “almost inevitable” that the European Court of Justice will continue to play a role in governing any deal in Northern Ireland.Asked if he would back the deal, Starmer said: “Yes. We haven’t seen the deal yet, but I’m completely across what the issues are and what the practical solutions are.”Frankly, any step in those directions is going to be an improvement on what we’ve got, which is why I can say with confidence we expect to be able to back the deal.”Setting out his battlelines for the next national election, expected in 2024, Starmer last week promised to ensure Britain has the fastest growing economy among the G7 on a sustained basis if it wins power.Britain’s economy narrowly avoided recession in late 2022 but faces a difficult 2023 as the effects of double-digit inflation hit households. Labour published an analysis showing a measure of living standards in Britain could fall behind that of Poland by 2030 and eventually Hungary and Romania without changes to policy.The party said that, based on average 0.5% annual growth between 2010 and 2021 in Britain, that figure would fall behind Poland’s per capita GDP by 2030 if Poland kept up its 3.6% average annual growth.The comparison was based on purchasing power parity, a measure that takes into account what money can buy in different countries and usually shows narrower differences than in unadjusted comparisons.Poland, a former communist state, has experienced rapid growth since joining the European Union in 2004, in part thanks to the injection of hundreds of billions of euros worth of development funding from the bloc. Like Britain, it is experiencing high inflation and an expected slowdown.Labour did not respond to a request for details on who had conducted the analysis. Using the same analysis, the party said that by 2040, Britain on its current trajectory would fall $12,000 per person behind Romania and $8,000 per person behind Hungary, providing they also remained on the same trajectory. More

Hello and welcome back to Trade Secrets, to which I’m returning after a short break. Many thanks to Aime Williams for filling in last week. If you missed it, here is her intriguing account of how the transatlantic row over electric vehicle tax credits has widened and metastasised. Sharp-eyed readers will note that both last week’s newsletter and now this defer yet further the occasion when Trade Secrets doesn’t mention US president Joe Biden’s EV tax credits. It’s only a matter of time before I have done with it and renamed this newsletter Electric Vehicle Subsidy Transatlantic Argy-Bargy Secrets. Today’s piece is on the new leadership at the World Bank. Charted Waters continues the green energy theme by looking at the market for solar energy.Running the bank: the who . . . The nomination of former Mastercard chief executive Ajay Banga as president of the World Bank is at least a reasonable effort in box-ticking by the Biden administration. Being an American with a business background will help keep Congress happy and funding the bank, a central reason for the US lock on the presidency. Meanwhile Banga’s strong Indian credentials give at least a nod to developing countries’ concerns that it’s time they had a go. Appointing a business type without extensive development experience or economics training isn’t necessarily a terrible idea: it’s as much a management and political job as anything. Before Banga, who has a first degree in economics, the departing David Malpass seems to have been the only bank president with much formal economics training since Robert McNamara in 1968, and much good it did the bank and him. Banga has not previously managed a big public sector organisation and this will mean a steep learning curve, and coming into the job without a lot of personal political heft to throw around even more so.The big substantive issue the new boss will grapple with is the bank’s role in climate finance. But first, let’s look at the job itself.Let’s be clear: there never has been and never will be a widely-admired president of the World Bank. There are big disagreements about how to do development and the sprawling, labyrinthine institution itself contains, let’s say, the odd divergent strand of opinion. The IMF over the street has a unified ideology while the bank is a continual raucous conversation: as someone once said to me, the fund is the People’s Liberation Army while the bank is the Harvard Faculty of Arts and Sciences.Malpass was unpopular because he was a Trumpite, suspect on climate change and highly critical of the bank before his appointment. But his predecessor Jim Yong Kim, who surprised everyone by resigning early in 2019, also alienated staffers with what they saw as high-handed and disruptive management.Perhaps the last president fundamentally to change the nature of the bank was Australia-born former investment banker Jim Wolfensohn. Wolfensohn, a Friend of Bill (Clinton), was dynamic and politically well-connected, and successfully moved the bank beyond its economic-liberalisation-plus-building-big-dams model towards a more holistic view of development. And yet staff complaints about his style were also legion.. . . and the whatJournalists can start writing their “New President Struggles To Reverse Underpowered World Bank’s Legitimacy Problems” stories right now, because that’s what all presidents have to do. The last paid-in capital increase for its main lending and private-sector arms was in 2018, and the bank’s transfers to developing countries continue to be dwarfed by private investment and indeed migrant remittances.The global green transition, together with climate mitigation, have a strong development and public good element to them. The bank has quite a lot of in-house experience with environmental issues, including water management.But it’s coming up against an old, old problem. The bank’s management has fought heroically over the years to move away from country-by-country lending to financing global public goods, but it often faces resistance from developing countries that want more traditional loans.The bank needs more money to fund the green transition, which will cost a cosmic $125tn by 2050, according to research commissioned by the UN climate champions. The big idea is to leverage up its balance sheet, which I’ve written about before.As my colleagues (including the great Aime Williams again) have written, ironically it’s the rich countries whose backing does most to bolster the bank’s rock-solid triple A credit rating that are keen to leverage up its balance sheet to lend more for green finance. The resistance comes from the bank’s management itself — not just Malpass but also senior permanent staff. They’re concerned that any threat to the bank’s credit rating will damage its credibility and long-term political support, whatever the rich-country governments say now.The staff’s scepticism is shared by lower-income countries that don’t really like the idea that green transition and climate mitigation necessarily equal development. (A powerful argument along the same lines from the economist Tyler Cowen here.) Developing countries are concerned about interest rates on loans rising if the bank starts to leverage its balance sheet, and say money must continue to go to health and education rather than just modish environmental causes. Green spending based on increasing the bank’s capital: fine. Green spending based on leveraging the balance sheet: steady on there.The rich countries look progressive while the developing countries look conservative. It looks odd, but that’s the World Bank for you. I’ll keep an eye on how it gets resolved.As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.Charted watersSticking with matters green, the FT has today published its latest Road to Net Zero report. Apart from being well worth a read, it highlights the rather encouraging news that solar power will overtake other energy sources by 2027.This is a remarkable achievement for a technology that a little over a decade ago accounted for less than 1 per cent of global energy production, as the chart above shows.The reason has been the frenetic pace of solar installations across the globe. Energy security concerns highlighted by Russia’s invasion of Ukraine will only fuel this construction boom. Record numbers of installations are now planned for each of the next five years.The catch? Well, as anyone looking out today on London’s leaden skies will appreciate, solar power production can be patchy. Some suppliers have also found it difficult to obtain permits and there is a shortage of the necessary skilled labour, creating bottlenecks and driving up costs. That has squeezed profits for some publicly listed suppliers in competitive markets. Every silver lining has a cloud. (Jonathan Moules)Trade linksA particularly good podcast from Trade Talks, this one on the mixed history of sanctions in the context of Russia and particularly its gas pipelines to Europe. For those who prefer reading to listening, the transcript is here.The French Institute of International Relations examines the digital technology policies of eight middling powers (Brazil, India, Israel, Japan, Kenya, Nigeria, Russia, South Korea and the UK) and concludes that all except Russia are maintaining balancing acts between the three great centres of tech regulation: the EU, US and China.The US-China shipping business remains in trouble as cargo volumes and freight rates continue their slump, with US retailers continuing to run down inventories rather than buy in more imports, though a bellwether shipping line reckons things will pick up in the second half of 2023.The EU, dogged in its defence of multilateralism, has produced a paper calling for more “focused deliberation” at the World Trade Organization rather than concentrating just on negotiations themselves. Sounds fine in principle but unlikely to entice the US back to enthusiastic participation.European Commission president Ursula von der Leyen is in the UK today to try to finalise the UK’s latest climbdown, that is to say agreement between equals, to fix the post-Brexit Northern Ireland problem. Meanwhile in the latest Global Britain sunlit uplands news, UK salad imports are down by more than half: poor harvests in Spain and north Africa have hit the UK more than most because of higher transport costs and post-Brexit paperwork.Trade Secrets is edited by Jonathan Moules More