UK to announce energy support for firms, after borrowing more than expected in August – business live

Brief: Ministers cap companies’ energy costs amid call for long-term support

Good morning and welcome to our rolling coverage of business, the world economy and financial markets.

UK businesses, charities and public sector organisations will finally know what support they will have to help them through the energy crisis – but will it be enough?

The government is expected to announce in its second part today a cap on wholesale gas and electricity costs for these groups. Energy Price Guarantee Cut skyrocketing bills.

The plan, to be announced by Commerce Secretary Jacob Rees-Mogg, is expected to reduce electricity and gas bills for non-domestic customers by about 50 per cent and 25 per cent, respectively, compared to current contracts.

This could cost tens of billions of pounds, depending on the high wholesale energy prices.

Liz Truss pledged “equal support” to businesses and public sector organisations in the coming winter when she announced the government would cap domestic bills by an average of £2,500 a year

But while these domestic caps are for two years, for many companies, business support may only last six months.

The discount will apply to contracts signed since April 1 this year and will run for six months from October 1, Bloomberg reported last night.

This will help the company through the cold winter, but there will be less certainty about the future.

Yesterday, pub chain Fuller’s revealed that without government support, its energy bill would more than double this year, from £8m to £18m.

The UK faces a “lost generation” of traders, business groups have warned, adding that the cap will not affect the steep charges levied by suppliers.

as my colleague Roina mason and Alex Lawson explain:

Suppliers will be able to charge themselves, with wholesale price caps reimbursed by the government.

That would be around 21p per kWh for electricity and 7.5p per kWh for gas. Those paying variable rates will have different caps. This is the most likely model and scale of energy bill support for businesses, government sources said, but did not say how much the entire package would cost the Treasury.

Craig Beaumont, head of external affairs at the FSB, said: “If the government is going to introduce fixed wholesale prices, tomorrow we need to see how this will apply to small business energy bills in practice. Suppliers need to be informed quickly Small businesses what are their new bills.

“However, another major component of small business energy bills — long-term charges — may not be regulated.

“While there will be caps on long-term charges for consumers, small companies will not, which means energy providers will likely continue to increase long-term charges, so it still means a spiral of energy bills for small businesses.”

We will also focus on financial markets today as investors are bracing for another sharp rise in U.S. interest rates tonight.

Economists predict the Fed will raise its benchmark interest rate by 0.75 percentage points, the third in a row, and signal another hike in the coming months.

agenda

7am BST: UK public finances for August
9am BST: Projected government’s energy business support plan
11am BST: CBI industrial trends survey of UK factories
3pm BST: US existing home sales in August
7pm BST: Fed rate decision
7.30pm BST: Fed Press Conference

key event

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Germany nationalizes Uniper to avoid energy sector collapse

In Germany, the government has agreed to nationalize gas importer Uniper, a historic move to prevent the collapse of its energy sector.

Under today’s deal, Germany will take control of Uniper, buying Fortum’s 78 percent stake — with the Finnish government majority-owned — for about 480 million euros.

Good morning from Germany, at the Lehman moment, the utility company Uniper is being nationalized. The German government will become the majority shareholder in Uniper, Germany’s largest natural gas importer, former majority owner Fortum announced. Uniper shares down 92.2% from ATH pic.twitter.com/yMXummxDwG

— Holger Zschaepitz (@Schuldensuehner) September 21, 2022

The Düsseldorf-based utility has lost billions of euros after Russia cut supply to Europe, and the Berlin government will inject 8 billion euros into Uniper.

Prices have soared as European countries try to build storage ahead of winter, leaving Uniper scrambling to find alternative natural gas supplies.

Sterling hit a fresh 37-year low against the dollar, falling below last week’s lows.

Sterling fell below $1.131, a level last seen in 1985, before recovering slightly. It has lost more than 16% against the dollar this year.

GBP/USD exchange rate over the past 20 years Photo: Refinitiv

The euro also weakens after the Russian president, while safe-haven government bonds are rising Vladimir Putin Partial mobilization of troops in Russia was announced in a national address.

Putin also accused the West of planning to destroy Russia and using nuclear blackmail, saying Russia would use “every means at our disposal”.

Our live blog on the war in Ukraine has more details:

After Britain borrowed £11.8bn last month, Chancellor Kwasi Kwarteng said the government was right to help households and businesses.

Kwarteng said in a statement:

“I have committed to lowering debt over the medium term. However, in the face of a major economic shock, it is absolutely right for the government to act now to help households and businesses,”

“Our priority is to grow the economy and improve the standard of living for everyone – strong economic growth and sustainable public finances go hand in hand.”

Points out that UK borrowing in August was almost double what the Office for Budget Responsibility had forecast in May Michael StermacherSenior Economist KPMG UK:

“Public sector borrowing was £11.8bn in August, £2.6bn less than last year but £5.8bn higher than the OBR forecast.

The overshoot was driven by higher-than-expected inflation pushing up the cost of debt interest and the rollout of the first instalment of a £650 cost-of-living payment for households from July.

The return of massive borrowing under the Liz Truss government will be a “test of the bond markets”, Stemach warn:

“Since the start of the year, UK 10-year government bond yields have risen by more than 230 basis points.

The expected increase in borrowing to fund energy price guarantees, coupled with a reduction in the Bank of England’s holdings of gilts, will be a test of whether private investors can absorb excess bond issuance without further punishing increases in debt servicing costs. . “

UK government borrows more than expected in August

Britain borrowed more than expected in August as soaring inflation pushed up the country’s deficit.

The Office for National Statistics reported this morning that public sector borrowing, excluding state-owned banks, stood at £11.82bn last month.

That’s down £2.6bn from August 2021 but up £6.5bn from August 2019, before the pandemic, when the UK borrowed £5.3bn to balance the books.

Public sector net borrowing excluding public sector banks was £11.8bn in August 2022.

This is £2.6bn less than in August 2021 but up £6.5bn from £5.3bn before the pandemic in August 2019 https://t.co/42s1SHr9Lq pic.twitter.com/jPtHGoZglI

— Office of National Statistics (ONS) (@ONS) September 21, 2022

A Reuters poll of economists predicted Britain would borrow 8.45 billion pounds.

The cost of servicing existing debt has pushed up the deficit.

In August, the UK paid £8.2bn in interest on central government debt. This included £4.7bn due to the impact of rising RPI inflation, which pushed up the cost of servicing index-linked government debt.

Public sector net debt excluding public sector banks was £2,427.5 billion as at August 2022, or about 96.6% of GDP.

An increase of £195.2 billion or 1.9 percent of GDP compared to August 2021 https://t.co/42s1SHqBVS pic.twitter.com/Kqm26wJUDP

— Office of National Statistics (ONS) (@ONS) September 21, 2022