Closing summary

Time to wrap up.

UK petrol retailers have called for an independent inquiry into the UK’s fuel crisis.

The PRA reported that just 71% of forecourts in London and the south east are offering petrol and diesel again, two weeks after panic buying began, and claimed that “failed government intervention and inappropriate prioritisation” are leading to “chaotic delivery schedules”.

The Bank of England’s new chief economist warned that the UK is facing a longer and larger spike in inflation than expected. Huw Pill told MPs that “the current strength of inflation looks set to prove more long lasting than originally anticipated.”

The pound has rallied, up half a cent at $1.3635, as traders anticipate that the Bank could be pushed into raising interest rates in the coming months.

Business secretary Kwasi Kwarteng has reiterated that ministers won’t bail out struggling energy suppliers, despite predictions that more could fail this winter, and that bills will surge again next spring.

The founder of green energy supplier Ecotricity accused the government of “killing energy companies right now” by operating a retail price cap but not a wholesale one.

Dale Vince told BBC Radio 4’s Today programme:

“It’s illogical to hold prices at one end of the supply chain and not the other end, and the natural consequence is companies going out of business.

“The government currently have closed their eyes and ears to this and said they don’t care, they’re not going to help energy companies but that kind of misses the point because they’re killing energy companies right now.”

Gas prices have eased back, after Russia appeared to use the crisis as leverage to get its controversial Nord Stream 2 pipeline approved:

But....the National Grid’s electricity system operator, ESO, warned that the risk of winter blackouts has increased after a fire affecting a key subsea cable further eroded Great Britain’s backup electricity supply cushion.

UK industrial groups said the warning highlighted the need for emergency measures to keep factories running this winter.

The supply chain crisis continued....

Nearly one in three UK firms saw the price paid for materials, goods or services jump by more than “normal price fluctuations” in early September, with builders worst hit.

One in 10 firms said they’d hiked prices last month, by more than usual.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, says there are rising concerns that the UK is being caught in an inflationary spiral

‘’The anecdotes from truckers, turkey farmers, builders and bosses about escalating problems in the supply chain are far from isolated cases. Rising costs hitting industries across the board are backed up in the latest large scale survey from the ONS. The Business Insights research shows that almost a third of businesses (29%) questioned reported that the price of materials, goods and services purchased over the last fortnight had increased by more than normal price fluctuations.

The situation is particularly acute in the construction industry, given that more than half of firms surveyed said prices had increased higher than usual levels over the last two weeks. Costs of materials like bricks, timber and steel were already rising before this week’s latest spike in gas prices, with companies like British Steel hiking costs per tonne by £30 last week because of escalating energy and haulage costs.

Over in Germany, industrial production tumbled by 4% as supply chain bottlenecks hit factories.

But there’s a welcome drop in weekly jobless claims in the US....

...where Senate leaders have also hammered out a short-term deal to extend the debt ceiling, giving a couple of months grace.

This has driven markets higher, with the FTSE 100 index closing 82 points higher at 7078, up 1.1% today.

UK house prices continued to surge, up 1.7% in September alone:

Sky is to launch its own range of smart TVs, removing the need for customers to use a satellite dish or set-top box.

The competition regulator has dropped its investigation into whether British Airways and Ryanair broke the law by failing to offer refunds to customers who could not legally take their flights because of coronavirus restrictions – but said the airlines should have given them their money back...

And finally....the maker of Quality Street has said the supply chain crisis may affect deliveries of some of its confectionery in the run-up to Christmas.

Goodnight. GW

Media news: Sky is launching its own range of smart TVs, removing the need for customers to use a satellite dish or set-top box.

The move shows the pay-TV company is shifting its offering to remain competitive in the streaming era.

The broadband-powered TV set, called Sky Glass, will be launched in the UK on 18 October and in Sky’s other European markets next year. The new service will aggregate content from streaming services such as Netflix and Disney+, as well as Sky channels and content from other broadcasters. More here:

Back in the markets, shares are pushing higher after US Senate leaders agreed a temporary deal to extend the debt ceiling.

Senate majority leader Chuck Schumer has announced there is an agreement between him and minority leader Mitch McConnell on suspending the debt limit through early December.

“We have reached agreement to extend the debt ceiling through early December and it’s our hope we can get this done as soon as today,” Schumer said referring to a vote on passage of the legislation.

NEWS: The Senate will hike the debt limit by $480b — that’s what Treasury says it needs to get to Dec. 3.

Debt limit and government funding lined right up for December.

— Jake Sherman (@JakeSherman) October 7, 2021

That will avert the risk that the US defaults on its debts later this month, which would have triggered turmoil in the markets.

The Dow Jones industrial average has jumped by 531 points, or 1.5%, to 34,948, with the broaded S&P 500 up 1.4%. Every sector is up.

European stock markets have pushed higher too, with the FTSE 100 index now up 94 points or 1.3% in late trading at 7090 points.

Updated

The PRA have also argued that the UK’s shift towards less polluting petrol was a ‘major factor’ in the fuel crisis.

They say the switch to E10 petrol (which contains more renewable ethanol than the E5 blend) led forecourts to run down supplies.

Government data this morning (see here) showed that fuel stocks had dipped in September before the panic buying began... and the PRA reckons the move to E10 is behind it.

The Telegraph explains:

Brian Madderson, the chairman of the Petrol Retailers Association, said the data showed that the fuel crisis had been an “unintended consequence” of the Government’s switch to greener petrol.

“For weeks we had been emptying our tanks of E5, the old fuel, as fast as we could to get ready for E10. We had all run our petrol stocks down,” Mr Madderson said.

“So when the panic buying started, many of our members ran out pretty quickly. Then the shortage of HGV drivers meant we couldn’t get supplies quickly enough.

“I don’t blame the Government particularly but the E10 switchover clearly had an unintended consequence: we couldn’t cope with the surge in demand.”

🔴EXCLUSIVE: The Government’s switch to greener petrol was a “major factor” behind the fuel crisis, industry chiefs reveal.

Petrol retailers were ‘emptying their tanks’ for the switchover to E10 fuel when garages were swiftly drained by panic buying

🧵👇https://t.co/OTxibw5eSI pic.twitter.com/kOZqK0ue9f

— The Telegraph (@Telegraph) October 7, 2021

UK petrol retailers call for independent inquiry into fuel crisis

A ‘no fuel’ sign on the forecourt of a Shell petrol station in Reading, Berkshire, today.
A ‘no fuel’ sign on the forecourt of a Shell petrol station in Reading, Berkshire, today. Photograph: Steve Parsons/PA

UK’s petrol retailers are calling for an independent inquiry into the fuel crisis, warning that the recovery is happening too slowly.

The Petrol Retailers Association says that fuel stations still aren’t being restocked fast enough, two weeks after the crisis began.

Its members report that just 71% of filling stations in London and the South East of England are offering both petrol and diesel today, compared to 90% in the rest of the country.

That leaves 12% of filling stations in London and the South East still dry, while 17% have just one grade of fuel.

Brian Madderson, chairman of the PRA, (whose members operate around two-thirds of forecourts) says:

“The recovery is simply not happening quickly enough. We are into our 15th day of the crisis. There needs to be an independent inquiry into the crisis, so that motorists are protected from such acute fuel shortages in the future.

⛽️ Petrol Retailers Association had just called for an inquiry into fuel crisis on “15th day of crisis”. Says that 12% of petrol stations in London and SE are still dry 17% have just 1 grade of fuel. Says dealers reporting no benefits from suspension of completion law

— Ashley Armstrong (@AArmstrong_says) October 7, 2021

The PRA says that the “current inept prioritisation policy” is not working, and that the government’s decision to suspend competition law to help energy firms work together “has been a failed experiment”.

Madderson claims that fuel supplies are being sent to the wrong parts of the UK:

“Since the Downstream Oil Protocol was invoked at 20:00 hrs on Sunday 26 September (more than ten days ago), we understand that meetings have taken place between BEIS and specialist hauliers and oil companies. These meetings were supposed to involve information sharing so that deliveries went to the areas where there were acute shortages. The independent dealer network (which numbers 65% of the total) has not had access to any of the information which was supposed to have been shared. We do not know when the deliveries are arriving and we do not know how they are being prioritised.

The PRA wrote to BEIS to ask how the suspension of competition law would benefit our dealers and we have not yet received a reply. As things stand, we are yet to see any benefits arising from the suspension of competition law. Fuel supplies are being sent to the wrong parts of the country, giving oil companies an excuse not to fulfil the spirit of their contracts with our members.

Madderson adds the petrol retailers in London and the south east of England have seen ‘chaotic’ delivery schedules during the crisis:

“Our members in London and the South East are indignant that the fuel crisis persists for a 15th day, as a result of failed government intervention and inappropriate prioritisation. They report chaotic delivery schedules, including one case of a tanker having to return to the depot full because it had arrived at a filling station which had just been stocked.

“Whilst we thank the Government for making available drivers from the military (which may in time feed through to increased supplies), suspending competition law has been a failed experiment. It is now time for the Government to step back, reimpose competition law, and restore market disciplines so that ordinary business incentives drive the fuel to the filling stations which need it. The lesson for us all may be that, however well-intentioned the Government is, regrettably, officials do not have the ability nor the capacity to command and control a crisis such as this.

Updated

UK natural gas prices remain calmer today, after dropping back from their record levels.

The contract for gas delivery next month is down 10% today at 245p per therm.

That’s down on yesterday’s spike over 400p, but still painfully high for suppliers.

The futures contract for UK gas delivery next month
The futures contract for UK gas delivery next month Photograph: Refinitiv

Fawad Razaqzada, market analyst at ThinkMarkets, says:

Russia’s offer to ease Europe’s energy crunch has been the biggest talking point in the markets today, as gas prices sold off. Russia wants to get the ball rolling on its controversial Nord Stream 2 natural gas pipeline, which according to Deputy Prime Minister Alexander Novak, would be one way to solve Europe’s energy crisis. Although it remains uncertain whether Russia will be granted the approval, investors know the pressure is growing on European leaders to do something about the surging energy prices – and fast.

Along with natural gas prices, both crude oil contracts sold off yesterday and although we saw further downside follow-through earlier in today’s session, oil prices have since bounced off their lows to turn flat. Natural gas prices remained lower on the day at the time of writing, but likewise off their lows. The key question is whether energy prices will head lower from here, or if this is just a pause before we see more gains.

A close-up of the Nestle Quality Street chocolates

The maker of Quality Street has said the supply chain crisis may affect deliveries of some of its confectionery in the run-up to Christmas.

Mark Schneider, the chief executive of Nestlé, said:

“Like other businesses we are seeing some labour shortages and some transportation issues, but it’s our UK team’s top priority to work constructively with retailers to supply them.”

When asked whether he could guarantee Quality Street would be in the shops this Christmas, he told the BBC: “We are working hard.”

In a later statement, Nestlé – which also makes Smarties, Milkybars, Aeros, KitKats and Lion bars, said there would be plenty of Quality Street to go around this festive season.... More here:

US jobless claims fall as Delta impact fades

In the US, the number of people filing new claims for jobless support has dropped for the first time in four weeks.

There were just 326,000 initial unemployment claims filed in the week to Saturday October 2nd, down from 364,000 the previous week.

That 38,000 drop suggests that the labor market is recovering from the disruption caused by Hurricane Ida, and the jump in Delta variant cases that hit the US this summer.

Initial jobless claims fell to 326K last week (decline of 38K from week prior). Continuing claims from all govt programs dropped by 855K to 4.17 million. Since late August, total continuing jobless claims have dropped by 7.9 million because of the expiration of extended benefits. pic.twitter.com/fN3hlUGgIa

— Cetera Investment Management (@ceteraIM) October 7, 2021

The initial jobless claims total had risen for the previous three weeks.

Robert Frick, corporate economist at Navy Federal Credit Union, predicts that jobless claims will keep falling towards their pre-pandemic levels (in the low 200,000s):

“The three-week detour away from declining jobless claims appears to have ended.

While the most recent week is above the pandemic-era low of 312,000 a month ago, we may be able to chalk the temporary rise to a combination of reporting issues in some states, layoffs from hurricanes and maybe the spike in the COVID-19 Delta wave.

With Delta infections dropping rapidly and hurricane effects mostly finished, we should resume the path toward normal levels of weekly layoffs, about 100,000 less than current levels.”

The number of Americans on jobless support for at least two weeks (the continuing claims total) has also dropped, points out Daniel Zhao, senior economist at Glassdoor:

Initial UI claims SA fell last week to 326K, reversing increases from September and nearing intra-crisis lows again.

Claims are volatile week-to-week, but with Delta on the downswing, claims may be headed downward again as the labor market improves.#joblessclaims 1/ pic.twitter.com/GT2Drx0KG9

— Daniel Zhao (@DanielBZhao) October 7, 2021

On a non-seasonally adjusted basis, initial claims from UI + PUA have hit an intra-crisis low, falling to 282K.

The remaining retroactive PUA claims should start to dry up as we're now 1 month after the Labor Day expiration.#joblessclaims 2/ pic.twitter.com/mk326OJARu

— Daniel Zhao (@DanielBZhao) October 7, 2021

Continuing claims SA have similarly fallen to a new intra-crisis low, dropping to 2.71 million, approximately 1 million above the pre-recession average.#joblessclaims 3/ pic.twitter.com/tsrpojrWxn

— Daniel Zhao (@DanielBZhao) October 7, 2021

And the Labor Day expiration of federal programs continues to draw down continuing claims.

Claims dropped by 6.2 million the week of 9/11 and have fallen another 855K the week of 9/18, totaling >7 million lost claims.#joblessclaims 4/4https://t.co/Zsl0zyY6Qi pic.twitter.com/VVeUsT2TaN

— Daniel Zhao (@DanielBZhao) October 7, 2021

BoE chief economist: inflation rise looks more long lasting than thought

The Bank of England’s new chief economist has warned that the UK is facing a longer and larger spike in inflation than expected.

Huw Pill told MPs on the Treasury Committee that the concerns about rising price pressures are increasing.

In a questionnaire to the committee, he says that ongoing global supply chain disruption, high demand, and rising raw material costs have pushed up imported goods prices, lifting UK inflation.

As the pandemic recedes and the level and composition of global demand and supply normalise, these inflationary pressures should subside. But the magnitude and duration of the transient inflation spike is proving greater than expected.

Pill also told MPs that the UK appears to be facing an ‘adverse supply shock’ as firms struggle to hire workers.

He also predicts that energy bills could jump again when the price cap is reassessed next spring (as analysts also fear), saying:

Taking the August Monetary Policy Report as the benchmark, over recent months inflation has surprised to the upside, UK activity data have disappointed somewhat, while the labour market has tightened. This combination has all the hallmarks of an adverse supply shock, centred on mismatches in the labour market.

Supply problems within the UK owe to the ‘pingdemic’ and shortages of specific skills (such as HGV drivers). Moreover, the rise in wholesale gas prices threatens to raise retail energy costs next year, sustaining CPI inflation rates above 4% into 2022 Q2.

Pill joined the Bank of England last month, replacing Andy Haldane who left in June (warning that his Bank colleagues were too relaxed about inflation).

Pill explains that the “benign view” is that these supply constraints as temporary, and that ending the furlough scheme will release more workers into the labour market.

But a “malign view” sees mismatches as persistent or even structural, and that ending furlough simply drives up long-term unemployment.

Reality will lie somewhere between these two polar characterisations of the risks, says Pill, adding:

In my view, that balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long lasting than originally anticipated.

#GBPUSD +0.15%, with a little help from some hawkish headlines from the BOE's new chief economist Huw Pill:

"Balance Of Risks Is Currently Shifting Towards Great Concerns About The Inflation Outlook"$GBP Daily & Hourly pic.twitter.com/VCasJ6kPpx

— Erik Bregar (@ErikBregar) October 7, 2021

Updated

Here’s what happened to fuel sales following those news stories the other week.
The single biggest spike in buying since comparable records began.
(Also, see if you can spot the Covid lockdowns…) pic.twitter.com/Y6kgfWGEFn

— Ed Conway (@EdConwaySky) October 7, 2021

Filling station stock levels recover after hitting just 15% in panic

UK petrol station stocks were already lower than normal before last month’s panic buying left many forecourts dry, new government figures show.

Fuel stock and sales data from the Department for Business, Energy and Industrial Strategy show that average stock levels had dropped to 33% for several days up to Wednesday 22nd September.

That’s down from around 40% in July, or 45% in late January 2020 before the pandemic hit the UK (which is a normal level).

Stocks dipped to 32% on Thursday 23rd, the day when reports that BP was preparing to ration fuel deliveries due to driver shortages hit the media.

On Friday, when queues began, stock levels shrank to 20%, and slumped again to just 15% on Saturday 25th September as panic buying gripped the UK (14% for petrol, and 17% for diesel).

UK fuel stock levels

The figures also show that levels recovered slowly last week, after an increase in deliveries.

UK petrol stocks and deliveries

They reached 25% by Sunday 3rd October, just before the military began helping to restock.

But there was a clear regional difference. Last Sunday, stock levels in Scotland had recovered to 35%, with north east England at 33%, while London was still at 18%, and the south east of England just 16%.

NEW: data released today by BEIS show fuel stocks at petrol stations across the UK were running at the lowest level for at least three years days BEFORE the news stories which sparked the “panic at the pumps”.

— Ed Conway (@EdConwaySky) October 7, 2021

Fuel stocks at petrol stations (petrol & diesel) dropped from 40% full in early Sept (40-50% is “normal”) to 32% on Thurs 23 Sept.
This was the lowest since at least Jan 2018.
But following the stories (and a spike in sales) they dropped MUCH further, to 15% on Sat 25 Sept. pic.twitter.com/Yo9ZpSGZPc

— Ed Conway (@EdConwaySky) October 7, 2021

Fuel stocks were already rebounding the following week and were back up to 25% by Oct 3 (Sunday just gone). Still a long way below “typical levels”, but heading in the right direction. Scotland the least affected in GB. South East the most affected (slightly more than London).

— Ed Conway (@EdConwaySky) October 7, 2021

Updated

UK firms hit by rising prices and shortage of hauliers

UK firms were hit by rising prices last month, forcing many to lift their own costs.

Nearly 30% of companies saw the price paid for materials, goods or services jump by more than “normal price fluctuations” in early September.

That included more than half of construction firms, and almost half of manufacturers, as supply chain problems hit the economy.

That’s according to the Office for National Statistics’s latest survey of the impact of the pandemic, and other events.

It also found that 10% of firms have hiked their prices by more than normal - including a quarter of manufacturers, indicating that inflationary pressures are building.

The report also found that 22% of firms reported that a lack of hauliers to transport goods or lack of logistics equipment had hit their efforts to import goods.

That’s up from 11% in late April 2021, showing that the lorry driver shortage is hitting businesses.

The ONS explains:

The wholesale and retail trade; repair of motor vehicles and motorcycles industry reported the largest percentage of lack of hauliers to transport goods or lack of logistics equipment as a challenge at 26%.

Additional paperwork and change in transportation costs remained the biggest challenges to both importing and exporting goods.

22% of currently trading businesses that reported how their importing had been affected said lack of hauliers to transport goods or lack of logistics equipment was a challenge in early September, compared with 11% in April https://t.co/X8QXDnfLEB pic.twitter.com/sAxZaef1t3

— Office for National Statistics (ONS) (@ONS) October 7, 2021

Here’s our news story on the jump in UK house prices last month, with Wales and Scotland leading the way:

The competition regulator has dropped its investigation into whether British Airways and Ryanair broke the law by failing to offer customers refunds who couldn’t legally take their flights because of pandemic restrictions – but said the airlines should have given them their money back.

The Competition and Markets Authority (CMA) said it is scrapping its four-month investigation due to a “lack of clarity in the law [which] makes it insufficiently certain that it would be able to secure refunds for customers”. More here:

"The recent issues that we have with the volatility of the gas price... I think that shows exactly why we need to pursue our climate goals"

Business Secretary Kwasi Kwarteng has been speaking at an energy industry conference https://t.co/HICOwS5OA5 pic.twitter.com/o5RlZ3Ce0F

— BBC Politics (@BBCPolitics) October 7, 2021

Britain's energy minister warns more firms could fail, rules out support

Kwasi Kwarteng is also continuing to rule out any bailouts for energy suppliers who risk collapse due to the energy price spike.

He told industry leaders at the Energy UK conference that it is going to be “a difficult time”.

We may well see more companies leave the market (although Kwarteng doesn’t want to prejudge this).

And despite the pressure on the industry from record wholesale prices, Kwarteng insists that:

“The most vulnerable must continue to be protected from exorbitant price spikes”.

[He’s insisted before that the energy price cap will stay, even though suppliers face surging costs, if they haven’t hedged against them].

Reuters have more details:

Britain’s energy minister warned on Thursday more energy companies could go bust amid record prices, but ruled out offering any support to struggling firms.

Soaring wholesale energy prices have led some energy suppliers to collapse, with nine going bust in September alone.

“We may well see companies going out of the market,” Kwasi Kwarteng told the Energy UK conference.

Kwarteng said the government would not provide support to struggling energy suppliers and that the current system was working, with a supplier of last resort appointed by regulator Ofgem to take on the customers from any failed companies.

“Government will not bail out failed companies, there cannot be a reward for irresponsible management,” he said.

In the longer-term, Britain’s plan to produce only “clean” energy by 2035, which could be renewable power such as wind or solar or nuclear power generation, will ultimately help to protect consumers, Kwarteng said.

Kwarteng also said the government was aiming to get at least one new large scale nuclear plant to financial investment decision by the end of this parliament, which could run until 2024.

The British government is confident the country's #energy supplies will meet demand this winter, the energy and business minister said on Thursday, but he warned that more suppliers could exit market. #ONGT

— Jessica Jaganathan (@j3ssi3) October 7, 2021

Kwarteng: confident of winter supply but more suppliers may leave

The British government is confident the country’s energy supplies will meet demand this winter, energy and business minister Kwasi Kwarteng has said.

Kwarteng told the Energy UK conference that more suppliers could exit the market (as analysts have also predicted, given the surge in wholesale energy prices):

“We may well see companies going out of the market.”

He also argued that decarbonising the UK’s power supply will protect customers from volatile fossil fuel prices in the long term:

“The UK so far, as many of you know, has made great progress in diversifying our energy mix. But we are still very dependent, perhaps too dependent, on fossil fuels and their volatile prices...

“Relying on homegrown power generation will protect consumers from gas price fluctuations.

And it will, in the long run, bring down bills, we will use the wealth of Britain’s natural resources to deliver cleaner, cheaper power.”

(thanks to PA Media for the quotes)

Secretary of State @beisgovuk, Kwasi Kwarteng talking this morning @EnergyUKcomms annual conference this morning.

Confirms 2035 carbon free electricity grid (subject to security of supply).#EUKConf21 pic.twitter.com/hTF936cKbi

— Phil McNally (@PhillMcNally) October 7, 2021

KK says that this transition will mean the UK will no longer be reliant on hydrocarbons from abroad (i.e. no more crises like today).

Followed by plugs for CCUS & hydrogen (doubt all those hydrocarbons will come from UK continental shelf…)

— Phil McNally (@PhillMcNally) October 7, 2021

Sets out 3 principles for times like these:

1. Gov will not bail out failed companies

2. Customers, especially vulnerable, must continue to be protected

3. Energy markets must remain competitive - but recognise the need for the market to evolve in an orderly and timely way

— Phil McNally (@PhillMcNally) October 7, 2021

UK'S BUSINESS MINISTER KWARTENG: ENERGY COMPANIES COULD POSSIBLY LEAVE THE MARKET; THE UK GOVERNMENT WILL NOT BAIL OUT FAILING ENERGY FIRMS.

— Breaking Market News (@FinancialJuice) October 7, 2021

Updated

Business secretary Kwasi Kwarteng about to speak at the Energy UK conference, just after @EnergyUKcomms CEO Emma Pinchbeck (who is hugely impressive) points out that they've been warning about retail suppliers for a long time but nothing has been done.

— Rob Davies (@ByRobDavies) October 7, 2021

"I've resisted saying 'I told you so'," she says. "Until now."

— Rob Davies (@ByRobDavies) October 7, 2021

On Boris Johnson's pledge to decarbonise electricity by 2035: “We are absolutely up for it but we cannot do it on our own. We need govt to back up that ambition with ambitious policies. We’re keen to see ambitious policies this autumn. We’d like to see a new Energy Bill."

— Rob Davies (@ByRobDavies) October 7, 2021

“Pledges are exciting but we want government to turn them into action.

— Rob Davies (@ByRobDavies) October 7, 2021

UK industry pleads for emergency help on energy prices

UK industry is urging the government, and Ofgem, to implement “emergency measures this winter” to help power-hungry sectors keep running.

The Energy Intensive Users Group (EIUG) says the National Grid’s warning of a greater risk of blackouts (see earlier post) emphasizes the need for Government and Ofgem to implement emergency measures this winter.

The EIUG represents a swathe of manufacturers, such as steel, chemicals, paper, glass, cement, lime, ceramics and industrial gases.

They are calling for measures to ensure reliable energy that isn’t prone to emergency interruption this winter, and available at affordable prices that let its members keep operating..

EIUG Chair, Dr Richard Leese, warned that current energy prices are uneconomical:

‘The issue is not just whether the supply of gas and electricity will be available but also one of price. Energy intensive industries could simply be priced out of the market.

This danger is massively heightened given this winter’s global energy outlook plus competition from Europe and other parts of the world for gas, including LNG.

The surge in energy prices this autumn has pushed the market towards ‘demand destruction’ mode, the point where costs are too high that users cut back.

Reuters analyst John Kemp explained yesterday:

EUROPE-WIDE gas and electricity prices are surging - signalling need for urgent factory closures to reduce gas consumption and rebuild depleted inventories ahead of winter: pic.twitter.com/2vDFSE8GrI

— John Kemp (@JKempEnergy) October 6, 2021

EU28 GAS PRICES will continue climbing until the market sees signs of actual demand-destruction - most likely announcements of temporary factory closures, longer holiday shutdowns over Christmas, and reductions in street lighting and commercial building thermostat targets

— John Kemp (@JKempEnergy) October 6, 2021

UK energy bills could rise 30% in 2022, warn analysts

Energy bills could rise by as much as 30% next year if gas and electricity prices continue to soar and more suppliers go bust, according to a new report.

Research firm Cornwall Insight is forecasting that the energy price cap, set at a record £1,277 a year from 1 October, is going to have to be significantly boosted in spring 2022 as the energy crisis continues.

The firm expects the energy price cap to be put up by about 30%, to around £1,660, by the industry regulator. Ofgem has said that if gas prices rise, or stay at such elevated levels, it will have to push the price cap up when it is reviewed on 1 April.

Craig Lowery, senior consultant at Cornwall Insight, warned:

“With wholesale gas and electricity prices continuing to reach new records, successive supplier exits during September and a new level for the default tariff cap, the Great British energy market remains on the edge for fresh volatility and further consolidation,”

FTSE rises as gas anxiety eases

Stocks have opened higher in London, as anxiety over the energy price crunch eases.

The FTSE 100 index of blue-chip shares is up 50 points, or 0.75%, at 7046 points - recovering some of Wednesday’s 1.1% drop.

Mining companies are leading the rises, indicating that fears over the economic outlook are easing. Copper producer Antofagasta are up 3.15%, followed by Anglo American (+3%).

Richard Hunter, Head of Markets at interactive investor, says the spike in energy prices has unsettled investors:

“Risk appetite has briefly returned for investors, although sentiment remains delicately poised.

Progress on debt ceiling talks in the US seems to suggest a temporary deal to avoid default, which gave markets a shot in the arm as the trading session progressed. At the same time, indications that Russia may be stepping up gas supplies also steadied energy prices, which have been the main culprit for the volatility which is currently being experienced.

Updated

Winter blackout risk in Great Britain rises after cable fire

The risk of winter blackouts has increased after a fire affecting a key subsea cable further eroded Great Britain’s backup electricity supply cushion, already diminished by the shutdown of gas plants and nuclear reactors.

The National Grid’s electricity system operator, ESO, said the “de-rated margin” – the amount of excess capacity that could be called upon if needed – was expected to be 6.6% or 3.9 gigawatts (GW).

That would be higher than the margins seen in 2015-16 and the following year. But the ESO said a worst-case scenario, such as multiple power plant outages, low wind speeds, and a bitterly cold winter, could cause the margin plunge to just 4.2%, or 2.5GW.

That would be well below the 5.1% it forecast in 2015, before a notoriously difficult winter when National Grid was forced to ask businesses to reduce their electricity usage to keep the lights on.

With margins likely to be tighter than the Grid would like, it expects to issue a similar number of electricity market notices to last year, when it sent six of the official pleas to energy suppliers to increase the amount of electricity they make available.

The ESO took the unusual step this year of issuing an early version of its Winter Outlook, its annual assessment of Great Britain’s electricity safety net.

Here’s the full story:

Updated

Energy boss: UK is "killing energy companies right now"

Dale Vince, founder of green energy supplier Ecotricity, has accused the UK government of “killing energy companies right now” through the retail price cap.

Vince told Radio 4’s Today programme that the government should either let energy be a free market, or nationalise it.

Vince explained that the price cap means companies are being forced to sell power and gas for a lower price than they can buy on the wholesale market. That’s why 12 have gone out of business this year.

He said:

It doesn’t make sense to have a retail price cap but not a wholesale one.

Fifty percent of Britain’s gas today comes from the North Sea, our North Sea. Those operators’ cost of operation has not gone up, but they’re selling their gas at five times what they did in January.

They’re making billions, while the government resists the natural ability of energy companies to put their prices up to stay in business, in order to save consumers from, basically, world events.

Vince argues that it’s “illogical” to hold prices at one end of the supply chain and not the other end, and the natural consequence is companies going out of business.

“The Government currently have closed their eyes and ears to this and said they don’t care, they’re not going to help energy companies but that kind of misses the point because they’re killing energy companies right now.”

The government should get out of the energy market, argues Vince -- “either let it be a free market, or nationalise it”.

“At the moment it’s neither one thing nor the other.”

That cap rose at the start of October, hitting families with higher bills. But it’s likely to rise again in April, possibly by hundreds of pounds more, given the jump in wholesale price in recent weeks.

Asked if there is a “compelling argument” for the industry to be brought back under state control, Vince adds:

“Absolutely.

“I’ve been saying that probably for the last decade, because, you know, energy is of vital national importance and at times like this, we can see that.

“These energy crises of the winter - they come around every three or four years. This is not a new event.”

Vince adds that Vladimir Putin made “perfect sense” yesterday, when he said Europe’s energy crisis was partly caused by the move to buying gas at “spot prices” not long-term contracts.

It’s the pinnacle of the free market, where the price changes every day

In doing that we’ve exposed ourselves to incredible fluctuations.

Good chat with Justin on R4 Today program - about the drama in the energy market, again. He made a good point, why are energy companies not obliged to hedge their power to protect against price shocks. Found myself agreeing with Putin too - whatever next? 😂 pic.twitter.com/8FrgNP6okj

— Dale Vince (@DaleVince) October 7, 2021

The price of gas for next-day delivery in the UK has also dropped this morning.

It’s down 5.8% to 218p per therm, after a wild day’s trading yesterday when it briefly hit 355p per therm (a record).

The day-ahead UK wholesale gas contract
The day-ahead UK wholesale gas contract Photograph: Refinitiv

Gas futures fall back

UK wholesale gas prices have dropped in early trading, away from yesterday’s record highs.

The contract for delivery next month has fallen by 16% to around 229p per therm - having spiked over 400p yesterday, before Vladimir Putin said Russia was prepared to stabilise the market.

The price of UK wholesale gas for delivery next month
The price of UK wholesale gas for November delivery Photograph: Refinitiv

The benchmark Dutch wholesale gas contract for November delivery has also dropped, as Europe’s energy crunch eases a little.....

EUROPEAN ENERGY CRUNCH: Large-ish price drops today for both UK NBP and Dutch TTF natural gas benchmarks (price drops also extending to benchmark power contracts across Europe). The market continues to be quite disorderly, with huge intraday swings, and large bid-ask spreads

— Javier Blas (@JavierBlas) October 7, 2021

The supply chain crisis is hurting Germany’s factories badly.

German industrial output fell 4% in August, as disruptions and shortages of key parts such as semiconductors hits factories.

Automakers were particularly hit. Production of cars and car parts fell by 17.5% on the month, while manufacture of machinery and equipment was down 6.3%.

The Federal Statistics Office says:

Producers continue to report production being constrained by a shortage of supply of intermediate products.

#Production in August 2021: -4.0% on the previous month. https://t.co/7H2CxdtySo pic.twitter.com/aIbD5NQaj7

— Destatis news (@destatis_news) October 7, 2021

German industrial production sinks by -4.0% MoM in August, much more than expected -0.4%, as factories face supply logjams and halt production. A 'bottleneck recession' seems now more likely, due to rising energy prices and shortage of semiconductors @graemewearden

— BP PRIME UK (@bpprimeuk) October 7, 2021

Annual house price inflation is weakest in the South and East of England, Halifax adds, with London (where average prices are highest) lagging.

The South West remains the strongest performing region in England, with annual house price growth of 9.7% (average house price of £276,226). The North West saw the next biggest increase, with house prices up by 9% year-on-year (average house price of £201,927), marginally ahead of Yorkshire and Humber at 8.9% (average house price of £186,815).

Eastern England has seen annual growth of 7.2% (average house price of £310,664) while in the South East it’s 7% (average house price of £360,795).

Greater London remains the outlier, with annual growth of just 1% (average house price of £510,515), and was again the only region or nation to record a fall in house prices over the latest rolling three-monthly period (-0.1%).

Halifax house price index

UK house prices surge at fastest rate since 2007

British house prices rose at the fastest rate in almost 15 years in September, the final month before the stamp duty tax break finally ended in England and Northern Ireland.

Mortgage lender Halifax has reported that prices rose by 1.7% during September, the biggest monthly increase since February 2007.

That lifts the annual rate of house price inflation up to 7.4% from 7.2% in August, with the average property now costing a record £267,587.

Wales and Scotland continue to outperform the UK average, Halifax reports. Wales saw 11.5% house price growth in September, with Scotland up 8.3% -- even though stamp duty tax breaks in both countries ended earlier in the year.

Russell Galley, Halifax’s managing director, said a shortage of homes for sale was pushing up prices, along with demand for larger home following the move towards home working in the pandemic.

Galley explained:

“While the end of the stamp duty holiday in England – and a desire amongst homebuyers to close deals at speed – may have played some part in these figures, it’s important to remember that most mortgages agreed in September would not have completed before the tax break expired. This shows that multiple factors have played a significant role in house price developments during the pandemic.

“The ‘race-for-space’ as people changed their preferences and lifestyle choices undoubtedly had a major impact. Looking at price changes over the past year, prices for flats are up just 6.1%, compared to 8.9% for semi-detached properties and 8.8% for detached. This translates into cash increases for detached properties of nearly £41,000 compared to just £6,640 for flats.

Galley also warned that demand may be cooling:

“Against a backdrop of rising pressures on the cost of living and impending increases in taxes, demand might be expected to soften in the months ahead, with some industry measures already indicating lower levels of buyer activity. Nevertheless, low borrowing costs and improving labour market prospects for those already in employment are likely to continue to provide support.

UK house prices rose by 1.7% in September, adding more than £4,400 to the value of the average property, says @HalifaxBank The rate of monthly growth was the strongest since February 2007, pushing year-on-year house price inflation up to 7.4%

— simon read (@simonnread) October 7, 2021

Victoria Scholar, head of investment at Interactive Investor, points out that the ‘race for space’ is one of several factors:

UK Halifax house prices (Sept)
+7.4% gain y/y (ahead of forecasts)
+1.7% gain m/m (strongest since Feb 2007)
Average prices hit record high £267,587
Wales and Scotland outperform UK average
Driven by 'the race-for-space', low interest rates, stamp duty holiday, limited supply pic.twitter.com/UxFWm9zgSR

— Victoria Scholar (@VictoriaS_ii) October 7, 2021

Updated

Here’s Bloomberg’s take on Russia’s move:

On a chaotic day that saw European benchmark gas surge 40% in a few minutes, Putin eased prices by offering to help stabilize the situation. Russia could potentially export record volumes of the vital fuel to the continent this year, he said.

Quick certification of the controversial Nord Stream 2 natural gas pipeline would be one way to achieve this, according to Deputy Prime Minister Alexander Novak.

Russia offers to ease Europe’s gas crisis, with strings attached https://t.co/loRaqQfdPb pic.twitter.com/VA1vr17d5n

— Zoe Schneeweiss (@ZSchneeweiss) October 7, 2021

Russia’s message is pretty obvious, says Jeffrey Halley, analyst at OANDA:

Putin sparked a near 10% sell-off in natural gas prices overnight after he offered to “stabilise” the natural gas market in Europe by potentially pumping more supplies through the Ukraine. The Russian Vice-President also mentioned certifying Nord Stream 2 once again as a potential solution to Europe’s gaseous woes.

President Putin also alluded to the benefit of long-term as to short-term supply contracts. Mr Putin’s comments were high on rhetoric but very low on detail such as how much and when. The message is fairly clear though, you can have all the gas you want in the future, you just need to sign here….

Introduction: Russia says Nord Stream 2 clearance may cool gas prices in Europe

Workers constructing the Nord Stream 2 gas pipeline near the town of Kingisepp in 2019.
Workers constructing the Nord Stream 2 gas pipeline near the town of Kingisepp in 2019. Photograph: Anton Vaganov/Reuters

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the UK’s supply chain crisis and business.

The surge in energy prices gripping Europe has eased a little, as Russia tries to use its leverage as an oil and gas superpower to assist -- and get approval for its controversial Nord Stream 2 undersea natural gas pipeline.

UK gas prices fell back from record highs after president Vladimir Putin suggested that state-backed Gazprom could increase supplies to help Europe avoid a full-blown energy crisis.

At a televised meeting on Wednesday, Putin hinted:

“Let’s think through the potential increase of supply on the market, only we need to do it carefully.”

Moscow appears to be using the crisis to push for Nord Stream 2 to get the green light.

Russian Deputy Prime Minister Alexander Novak said that approval for Nord Stream 2, which connects Russia to Germany under the Baltic Sea, could cool soaring European gas prices.

Novak told a meeting of government officials and heads of energy companies.

“I think there are two factors, which could somewhat cool off the current situation. First of all, of course, this is, definitely, completion of certification and the fastest clearance for gas supplies via the completed Nord Stream 2,”

These comments dragged gas prices back from record levels last night, in wild trading.

UK gas contracts for November delivery surged almost 40% early on Wednesday over 400p per therm, but closed 9% lower at 271p.

How about this from some intraday volatility. I present UK gas prices. pic.twitter.com/YJoVVIOxxd

— Neil Hume (@humenm) October 6, 2021

But Nord Stream 2 is controversial - it circumvents Ukraine, which relies on existing pipelines for income, and still needs to be certified by Germany’s regulator.

Back in March, US secretary of state, Antony Blinken, warned it was “a Russian geopolitical project intended to divide Europe and weaken European energy security”.

Nord Stream 2 needs approval from the energy regulator in Berlin to start operating commercially. They need to be satisfied that it meets EU ‘unbundling’ rules separating of gas transport from production and sales -- a certification process that could take months.

And some EU MEPs are worried that Nord Stream 2 may decide to start flows without the necessary approvals. Senior lawmakers on Tuesday called on the European Commission to exercise all its powers to ensure compliance with EU law, Bloomberg reports.

With Natural #Gas prices skyrocketing #EU is on the verge of a state of emergency.

However, today #Putin announces that he is willing to help stabilize the gas #market.

With that being said, it is apparent that this stabilization will happen only if Nord Stream 2 is launched. pic.twitter.com/tROIBn2Y0x

— Waterpier Group (@WaterpierGroup) October 6, 2021

European stock markets are on track to recover yesterday’s losses, with the FTSE 100 called up over 1%.

Investors are relieved that Republicans and Democrats in Congress said they would consider a stop-gap measure extending the country’s borrowing limit until December.

It would be a temporary solution to America’s debt ceiling crisis, which is threatening an unprecedented default.

European Opening Calls:#FTSE 7062 +0.94%#DAX 15125 +1.01%#CAC 6564 +1.10%#AEX 770 +1.12%#MIB 25821 +0.84%#IBEX 8855 +0.91%#OMX 2242 +0.94%#STOXX 4058 +1.13%#IGOpeningCall

— IGSquawk (@IGSquawk) October 7, 2021

The agenda

  • 9am BST: Italian retail sales for August
  • 9.30am BST: Energy UK’s Annual Conference 2021
  • 9.30am BST: ONS’s Business insights and impact on the UK economy survey
  • 12.30pm BST: ECB Monetary Policy Meeting Accounts
  • 12.30pm BST: Challenger survey of US job cuts in September
  • 1.30pm BST: US weekly jobless report

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Graeme Wearden

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