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Another £12bn is needed to keep support for UK energy bills at the same level, says IFS
Marc Sweney
Government must spend an extra £12billion to maintain the scale of support promised to help families cope with the cost of living crisis as energy prices continue to soar, analysis finds from the Institute for Fiscal Studies (IFS).
The economic think tank said the extra funding will be needed to meet the £24billion aid package announced in May, largely because the expected rise in energy prices over the next year fell from 95% to 141%.
It means working-age claimants are now on track to see their real income drop by £620 over the year.
The IFS says the government should double the current £650 grant to benefit recipients to protect them, as well as help low-income pensioners and working families, at a cost of £5.5billion.
Similarly, the cost of maintaining the £150 council tax rebate and the £400 energy rebate will now cost the government an additional £7billion if it is to continue to cover around half of the increased costs that a typical family will experience over the year.
Paul Johnsondirector of the IFSsaid:
As prices for basic necessities including food, heat and fuel continue to rise, low-income families face more uncertainty and pressure. The government is still trying to catch up as inflation and the cost of energy continue to soar. Just achieving what they wanted to achieve in May will cost an additional £12billion, and a package of this magnitude will still leave many households far worse off.
The FTSE 100 gained 0.3% in the opening minutes of trading this week of mid-August, hitting its highest level since early June.
The top winner is RS Group, formerly known as Electrocomponents, amid speculation it could be in line for a takeover bid.
Pharmaceuticals group AstraZeneca gained 2.5% after it said its breast cancer drug Enhertu had shown positive trial results.
Elsewhere in Europe, actions look positive. Here are the pictures from Reuters:
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THE EUROPEAN STOXX 600 UP 0.4%
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THE FRENCH CAC 40 UP 0.4%
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SPANISH IBEX UP 0.2%
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EUROZONE BLUE CHIPS UP 0.4%
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GERMAN DAX UP 0.4%
China’s lockdown stimulus stimulus ‘collapsed’ amid signs of slowing economy
Hello and welcome to our live and continuous coverage of business, the economy and the financial markets.
China’s economy is showing signs of slowing activity as a range of economic indicators suggest that growth in industrial production and retail sales are below economists’ expectations.
Oil prices dropped Monday morning after data release; a slowdown in economic activity in the world’s second largest economy would likely lead to lower demand for oil. The price of Brent crude for October delivery fell 0.8% to $97.36, while North American benchmark West Texas Intermediate fell 0.9% to $91.13.
Chinese industrial production continued to grow, but grew only 3.8% on an annual basis (less than the expected 4.3% growth), while retail sales increased by 2.7 % over one year, clearly less than the 4.9% of the expected rate. The data suggested that industry and consumers could rein in spending, while there were also signs that China’s property market is also struggling. Real estate has long been a source of growth, but economists question its sustainability.
It was a “sharper loss of momentum than expected,” said Craig BothamChina+ Chief Economist at Macroeconomics Hall of Fame, a consulting firm. He said:
The slowdown in Chinese industrial production confirms the narrative that the better performance in May and June was mainly the result of a rebound from the reopening, and that with order books now depleted, Chinese factories will again be operating more more inactive.
The People’s Bank of China, the country’s central bank, reacted quickly by cutting borrowing costs over a week and a year, in a bid to inject more money into the economy.
The cut was ‘a surprise move’ to cut interest rates to support the economy following ‘weak’ economic data, according to Mohit KumarManaging Director of Interest Rate Strategy at Jefferiesan investment bank.
Julian Evans Pritchardsenior Chinese economist at Capital savinga consulting firm, said:
Data from July suggests the post-lockdown recovery has run out of steam as the one-time boost from reopening faded and mortgage boycotts sparked further deterioration in the housing sector. We believe the outlook will remain challenging in the months ahead as exports shift from a tailwind to a headwind, the real estate slowdown deepens and virus disruptions remain a recurring drag.
You can read more about China’s data here:
In the UK, the big news driving the day is Labor leader Keir Starmer, who has returned from vacation with a £29billion plan to freeze energy bills.
The Guardian’s Andrew Sparrow and Phillip Inman report:
Starmer said the plan would cost £29billion over the winter and could be funded by extending the reach of the windfall tax on energy companies (raising £8billion), halting payments proposed £400 for all households offered by the government to offset the price cap hike planned for October (saving £14bn) and reduction in government debt interest payments (saving £7 billion), which Labor says would be possible because his plan would reduce inflation.
Whether this would reduce inflation in the longer term is up for debate, but the move will certainly sow the waters between Labor and the two Tory leadership candidates, Rishi Sunak and Liz Truss. Sunak has pledged to spend around £10billion on the crisis, while Truss has not revealed the costs of how it will support households. Truss is considered the favorite in the race due to her lead in the polls among Conservative party members.
Remember that the government’s response is seen as the key variable in the performance of the UK economy in the months ahead. The Bank of England’s forecast of a long recession and inflation of 13% is based on maintaining fiscal policy. This seems unlikely, given the magnitude of energy price increases expected this winter if wholesale oil and gas prices remain high.