Aurelia Butler

Good evening,It’s been another day of government efforts to deal with the energy crisis across Europe, including an unprecedented package of support for businesses in the UK and the biggest corporate bailout in Germany since the 2008 financial crisis.In a long anticipated announcement, the UK said it would cut the wholesale price of energy for companies and public organisations by more than half this winter, stepping in “to stop businesses collapsing, protect jobs and limit inflation”.Businesses gave a cautious welcome to the proposals but many still expect to see substantial rises in their bills compared with previous years. Bosses are also worried about what might happen once the six-month scheme ends in March, warning that the lack of clarity could hit investment. In contrast, support for households runs for two years. The package for business is also much more complicated and gives little incentive to conserve energy, says the Lex column.The EU is also facing questions about its package of aid for households and businesses, funded by a €140bn windfall tax on energy companies, as member states demand more flexibility on how the plans are implemented.Germany, meanwhile, has announced the nationalisation of struggling utility Uniper — once Europe’s biggest importer of Russian gas. The company has been hobbled by having to buy more expensive gas on the spot market after Moscow cut off supplies. Policymakers feared its failure would have serious repercussions for Europe’s biggest economy.In tandem with support with bills, Brussels continues its quest for alternative energy sources. Today, it announced €5.2bn of public support for its second hydrogen project, a sector regarded as essential for the transition to more sustainable energy.However, green ambitions face stiff resistance from fossil fuel companies. Former US vice-president and longtime environment campaigner Al Gore, told the Financial Times that European governments must push back against corporate efforts to capitalise on the energy crisis by locking consumers into long-term dependence on hydrocarbons.At least $50bn of spending is planned by EU governments this winter on fossil fuel infrastructure and supplies to replace shortfalls from Russia, but Gore insisted that the search for energy security must not be allowed to hamper the green transition.“We need to move quickly in spite of the geopolitical situation we’re facing — indeed, because of it,” he said.Another reminder of the power of legacy oil and gas companies comes from Gore’s own country, where lawmakers are investigating “deceptive” PR tactics employed on behalf of the oil and gas industry that misled the public about climate change.Read more on how Russia’s weaponisation of gas has spurred the push for cleaner energy in our new special report: Energy Transition.Latest newsNato’s Stoltenberg accuses Putin of ‘dangerous and reckless nuclear rhetoric’Steep mortgage rates fuel August decline in US existing home salesNew York attorney-general files fraud suit against Donald Trump and familyFor up-to-the-minute news updates, visit our live blogNeed to know: the economyThe US Federal Reserve announces its decision on interest rates today at 2pm ET (7pm London). Economists expect an increase of 0.75 points for the third time in a row. Check back on FT.com for details and reaction. It’s a big week everywhere for central banks. The Bank of England is under pressure to announce a hefty rise in rates tomorrow, while European Central Bank president Christine Lagarde has also stressed the need for swift increases. Sweden’s Riksbank raised rates by 1 percentage point yesterday, its biggest increase in three decades.Latest for the UK and EuropeThe challenges facing Kwasi Kwarteng, the UK’s new chancellor, ahead of his “mini Budget” (check out this Friday’s Disrupted Times for the details) were underscored by new data showing government borrowing rose to twice the level expected in August.Meanwhile, UK prime minister Liz Truss said she was ready to take on “vested interests” to lift economic growth. But her first meeting with US president Joe Biden today could be a little awkward after his assertion that “trickle-down economics” — as some have branded her ideology — “has never worked”. A UK-US trade deal remains as far off as ever.Industrial tycoon Carlo De Benedetti told the FT he was concerned about Italy’s relationship with Brussels if, as polls suggest, a hard-right coalition comes to power in Sunday’s general election.Global latestThe dollar hit a new 20-year high against its peer currencies today after Russian president Vladimir Putin called up more troops for his war in Ukraine. The greenback is widely perceived as a haven currency during times of geopolitical tension and economic stress.The Asian Development Bank cut its 2022 growth forecast for the region’s developing nations from 5.2 per cent to 4.3 per cent in the face of China’s lockdowns, the war in Ukraine and rising inflation. For China itself, the ADB cut its forecast from 5 per cent to 3.3 per cent.One country in the region bucking the trend is Indonesia, which is currently benefiting from both a booming economy and a period of political stability, as our Big Read explains.China is increasingly competing with the IMF in offering emergency loans to stricken countries. Ecuador’s $1.4bn debt restructuring deal is the latest. China is, however, losing its attractiveness as an investment location for European companies, according to the local EU Chamber of Commerce.One of the most serious consequences of the pandemic has been its effect on children’s education, especially in poorer countries where families now face fresh pressures over rising prices and food insecurity.The pandemic period has also been one of growing inequality in global wealth. The ranks of the super-rich — those worth more than $100mn — increased by 21 per cent in 2021, according to new Credit Suisse data.Need to know: businessVaccine makers have lost billions in market value after Biden declared “the pandemic is over” on Sunday night.JPMorgan chief executive Jamie Dimon warned that new US capital requirements posed “significant economic risks” for large banks, making it harder to meet customer needs just as “storm clouds” were gathering over the economy.Watch this: The new film Skandal! Bringing Down Wirecard, the story of how FT reporters exposed massive fraud at the German payments firm, is now available to watch on Netflix. Catch up on reactions on Twitter to the premieres in London, Hong Kong and New York.The World of WorkUS investment and industries editor Brooke Masters wonders whether Citigroup’s new hub for junior investment bankers in Málaga, a Spanish city known better for beaches than finance, ostensibly to provide better work-life balance, might be just another “mommy track”.Workers in the Philippines’ $30bn call centre industry have won their battle to make remote work permanent after an agreement was reached with tax authorities.Middle managers who came under intense pressure looking after staff during the pandemic still face immense problems, as they juggle demands from company leaders with workers striving for better pay and the continuation of flexible working patterns.QTWTAIN: Are the British really the worst idlers in the world? There is a problem with poor levels of productivity, writes columnist Sarah O’Connor, but this is mainly down to lack of investment in new technology that helps workers do their jobs more efficiently.Or they could just take psychedelics. Some Silicon Valley executives believe microdosing using drugs such as LSD can increase concentration and productivity. Host Isabel Berwick investigates the claims in the latest episode of the Working It podcast.Get the latest worldwide picture with our vaccine trackerSome good newsIn case you missed it, the World Health Organization has turned optimistic on the trajectory of coronavirus after a fall in global cases. “We have never been in a better position to end the pandemic,” the WHO said. “We are not there yet, but the end is in sight.” More

Ministers have been urged to extend help for UK businesses struggling with soaring energy costs beyond the six month cliff-edge set out under the terms of the government’s £150bn support package on Wednesday.Companies said the energy subsidies would remove the threat of skyrocketing bills in October, when many were facing contract renewals. But bosses added that the lack of clarity about what would happen beyond six months risked hitting business investment. Support for households, by contrast, runs for two years.Ministers have said they will review which sectors are most vulnerable before deciding on additional help. Companies welcomed the promise of state support, which will cap wholesale energy prices at more than half this winter. But many said bills would remain much higher than last year, owing to the surge in prices following the Ukraine war. Neil Clifton, managing director of Midlands-based group Cube Precision Engineering, which makes products for the automotive and aerospace sectors, said his energy bills had been due to rise from £12,000 in August 2021 to £44,000 this year.He said state support would limit them to between £23,000 and £25,000, which he called “not ideal, but something we can manage”.Clifton questioned when his energy supplier would inform him of the new prices and at what level they would be set, given the extra costs that could be added to bills, including the standing charge. Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said small businesses would not know how much their bills would rise until their supplier contacted them. He also raised concerns about future increases in standing charges, and questioned why there was no help for groups that signed new contracts in February and March. Nimisha Raja, founder of Nim’s Fruit Crisps, a snack manufacturer based in Sittingbourne, Kent, said the package “doesn’t help us at all” because the government “has done nothing to address” her £14 a day standing charge. Lionel Benjamin, co-founder of AGO Hotels, said the package would “only mask the problem for a short while” and that “more will need to be done longer-term to stop businesses collapsing”. He added that energy now accounted for almost a third of his group’s operating costs, up from 8-12 per cent before its latest contract renewal.Liz Truss, the prime minister, on Tuesday said extra help would be available for pubs after six months but gave no further detail on which other sectors might benefit from a new support package. Sacha Lord, night-time economy adviser for Greater Manchester, welcomed that pledge but said “businesses will still be paying more than they’re used to” and that “the real concern is whether they can afford to continue trading”.

Jason Black, director of Cornish Inns, a pub company with four sites across Cornwall, said he had been facing a more than twofold increase in his electricity bill to £450 per MWh when the contract for his largest venue was renewed in October.That bill will now be halved, while costs across Black’s three other sites will fall about 15 per cent.He praised the government for doing “the right thing” but said it should offer “more targeted help for pubs and restaurants, as we don’t know what [the consumer downturn] will do to people heading out”. The package also covers organisations including charities and schools. Kevin Courtney, joint general secretary of the National Education Union, said that although the measures “provide a ceiling on funding pain . . . schools are still paying vastly more for their energy than was expected a year ago, with harmful consequences for education”. More

Even with Prime Minister Liz Truss’s action to stem rises in energy bills, the economic pain is just beginning. UK households still face pressures on their finances not seen since the second world war. The same is true for companies. Caught by both rising costs and falling consumer spending, this pincer movement is troubling businesses both large and small. So far, with spending levels still strong in the economy, many companies have been able to raise prices to mitigate the issue. They will also receive help with a cap on non-domestic energy bills this winter. Even with the underlying strengths and government support, the big question is what happens next. This is a drama that is likely to be played out in three acts, culminating with corporate distress and a recession. Act 1: Never-ending billsIn the first quarter of 2022, average electricity bills for companies were about 30 per cent higher than a year earlier. Rising bills have not stopped landing in the inboxes of company managers ever since. With a crisis point having been reached in early September, the government pledged to act almost immediately to prevent companies being asked to pay up to five times their previous rates in gas and electricity charges. It has promised to set a limit on energy bills for the next six months, with help for some smaller companies extending well into next year.

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Even so, at the new controlled price, many companies will still face much higher costs for energy than a year ago. Among the hardest-hit companies are energy-intensive industries, often at the base of the supply chain, producing metals, plastics and other parts crucial for manufacturing and building. These are now feeling the pinch. Small business confidence plunged in both the manufacturing and construction sectors this year.

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Although oil prices have come off the boil in recent months, manufacturing companies that use crude oil or other fuels including gas have seen the largest rise in costs over the year to August. Gas prices have increased about 50 per cent. For the manufacturing industry, input costs have risen 20.5 per cent in the most recent year, adding to their challenges. With food inputs also up about 20 per cent, prices of many supermarket items have naturally risen sharply.At the other end of the supply chain, leisure industries that rely on heating large spaces, such as shops, swimming pools or nurseries, are having to turn thermostats down and put prices up. Small businesses feel they are at the sharpest end. The squeeze is not limited to raw material costs. In much of the service sector, companies are affected more by wage increases than by higher costs. Regular pay grew at an annual rate of 6.2 per cent in the private sector in July, the most recent month available. That was the highest rate of increase this century, excluding a period during the pandemic when the figures were distorted. Even so, pay is growing slower than prices, which were 9.9 per cent higher in August than a year earlier, putting pressure on companies to pay more. This will be hard to resist when there are currently as many vacancies as there are people classified as unemployed, twice the normal tightness in the labour market.

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In jobs in wholesale trade, construction and hospitality, advertised rates have risen sharply since the start of 2022, according to Indeed.com, the recruitment website. By contrast, advertised pay for nurses is barely rising, even after their services were in such demand as a result of the pandemic. Act 2: Rising borrowing costsCompanies have more to be concerned about than raw material and wage costs. The cost of debt is rising too. Having kept official interest rates close to zero for more than a decade, the Bank of England raised borrowing costs from 0.1 per cent last November and has signalled further rises to help bring inflation down. The Monetary Policy Committee set rates at 1.75 per cent in August and financial markets expect them to rise above 3 per cent by the end of the year. Large UK companies often have fixed borrowing costs, limiting their exposure. The BoE thinks the proportion of large companies facing material risks of repayment difficulties will rise from 30 per cent to 46 per cent at the end of this year. Interest rates would have to rise to 4.5 per cent for this exposure to reach historic highs, capturing just over 60 per cent of companies. That, however, is no longer above market expectation. Smaller companies are not nearly as well protected. While the new debt these companies took on during the pandemic was generally at fixed rates, the BoE estimates that 70 per cent of their existing stock of loans is exposed to interest rate rises within a year. Many of these companies will be exposed to a nasty borrowing costs shock in the months ahead.

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At the same time, companies must look at sales. These have been falling on the high street and stress is evident in the consumer confidence figures. This fell in August to a near 50-year low as households worried about their own financial situation and the wider economy. Act 3: Spending under pressureConsumer spending will probably fall further. Food, rents, mortgages, petrol and energy prices, which account for more than 40 per cent of household budgets, are all rising quickly. Many consumers will cut down on discretionary spending this winter and focus on the basics. Poorer households will be forced to make even more difficult choices.A survey of 3,000 people by SellCell, a price comparison website, showed a majority of households planning to cut down on entertainment spending and eating out. Only 24 per cent of respondents said they would not cut discretionary spending at all this winter. Intentions to cut back do not always result in actual spending reductions, but the early evidence from the high street suggests greater spending restraint in non-food stores than in supermarkets, indicating that discretionary spending is likely to be hit. With food manufacturers’ costs having risen about 20 per cent, the likelihood is that food price inflation will rise further from the August level of 13.4 per cent. That will put severe pressure on cafés, restaurants and food outlets to cut costs at a time when consumers are becoming much more price conscious. And the BoE still wants to impart a shock to ensure that inflation comes down. To the central bank, a higher rate of unemployment and lower rises in wages are the necessary evils required to restore price stability. The BoE thinks the recession will be shallow but last through much of next year, with unemployment rising to more than 6 per cent. The data suggests the process is already well under way. Households are cutting back at the same time as corporate profits fall. Signs of corporate distress such as the 42 per cent rise in corporate insolvencies since last year are likely to rise even further.This is how recession starts. More

BERLIN/LONDON/HELSINKI (Reuters) -Germany nationalised gas importer Uniper on Wednesday and Britain capped wholesale electricity and gas prices for businesses, as Europe splurged cash to keep the lights and heaters on this winter amid an escalating war in Ukraine.Russian President Vladimir Putin added to the energy price pain on Wednesday, sending oil and gas prices higher by announcing a partial military mobilisation.European governments have already earmarked almost 500 billion euros ($496 billion) in the past year to shield citizens and companies from soaring gas and power prices, according to research published by think-tank Bruegel. Russian cuts to gas supply to Europe in retaliation for Western sanctions on Moscow over its invasion of Ukraine have left utilities exposed to sky-high spot prices as the scramble for alternative supplies has helped drive up consumer bills. Uniper has been among the biggest corporate victims, with Germany earmarking another 8 billion euros in the latest step in its rescue while Britain said its new plan would cost “tens of billions of pounds.” Among the high spenders, France will allocate 9.7 billion euros to take full control of utility EDF (EPA:EDF).”We have stepped in to stop businesses collapsing, protect jobs, and limit inflation,” Britain’s finance minister Kwasi Kwarteng said, while another cabinet member said the final cost of its energy support would depend on how high prices climbed.More than 20 British power providers have collapsed, many crumbling because a government price cap prevented them from passing on soaring prices.European gas prices on Wednesday hit as much as 212 euros per megawatt hour (MWh), below this year’s peak of around 343 euros but up more than 200% from a year earlier. Oil prices rose nearly 3%.INCREASED RISKS”The partial mobilisation is definitely a bullish factor as it increases the risks of a prolonged war in Ukraine,” said Viktor Katona, lead crude analyst at Kpler.Uniper’s full nationalisation follows a multi-billion euro cash injection that proved inadequate.The German government will buy the remaining stake owned by Finland’s Fortum to give the state a 99% holding. “This is clearly not sustainable from a public finance perspective,” Bruegel senior fellow Simone Tagliapietra said of Europe’s overall energy crisis bill.”Governments with more fiscal space will inevitably better manage the energy crisis by outcompeting their neighbours for limited energy resources over the winter months.”‘DO EVERYTHING POSSIBLE’German Economy Minister Robert Habeck, announcing the Uniper move and other steps to help Germany avoid energy rationing this winter, said: “The state will … do everything possible to always keep the companies stable on the market.”The nationalisation gives the German government control of some assets in Russia, a government spokesperson said, adding that it was examining what to do with these.Germany was more reliant than many others in Europe on Russian gas, mostly supplied via the Nord Stream 1 pipeline. Russia halted flows through the pipeline, blaming Western sanctions for hindering operations. European politicians call that a pretext and say Moscow is using energy as a weapon. The German government has already put Gazprom (MCX:GAZP) Germania, a unit of Kremlin-controlled Gazprom, and a subsidiary of Russian oil company Rosneft under trusteeship – a de facto nationalisation. Adding Uniper’s bailout, the bill amounts to about 40 billion euros.Fortum CEO Markus Rauram said selling the firm’s stake in Uniper was a painful but necessary step, adding that the company which is majority owned by the Finish state lost about 6 billion euros on its Uniper investment. Russia’s gas flows to Europe via Ukraine were steady on Wednesday while eastbound gas flows via the Yamal-Europe pipeline to Poland from Germany were halted.In the United States, Democratic and Republican senators on Tuesday proposed that President Joe Biden’s administration use secondary sanctions on international banks to strengthen plans for a price cap by G7 countries on Russian oil.Moscow has said it would cut all oil and gas flows to the West if such a cap was implemented.The move by U.S. lawmakers came hours before Putin ordered Russia’s first mobilisation since World War Two, warning the West that if it continued what he called its “nuclear blackmail” Moscow would respond with its vast arsenal. Several countries have banned imports of Russian crude and fuel, but Moscow has managed to maintain its revenues through increased crude sales to Asia.($1 = 1.0087 euros) More