Biggest jump in UK credit card borrowing since 2005; energy prices fall as EU plans emergency measures – business live

UK gas prices are also falling this morning.

The day-ahead price of UK wholesale gas has dropped by over 20% to 450p per therm, while the month-ahead contract us down over a quarter.

The Dutch wholesale gas price, a benchmark for Europe, has also fallen back, despite Gazprom cutting supplies to French utility Engie this morning.

It’s an encouraging sign, although prices are still painfully high, as Gazprom prepares to close its Nord Stream 1 pipeline this week for three days of maintanance.

UK households are loading up their credit card debt at the fastest rate in almost 17 years, as the cost of living squeeze tightens.

Consumers borrowed an extra £700m on their credit cards, an increase of 13.0% in the 12 months to July. That’s the fastest increase in credit card borrowing since October 2005, new data from the Bank of England shows.

People are having to borrow more, at a time when inflation has hit a 40-year high over 10% driven by essentials such as energy and food.

Paul Heywood, chief data and analytics officer at credit scoring agency Equifax UK, explains (via Reuters):

“The most vulnerable have run out of quick fixes, which is why we continue to see considerable growth in demand for credit.”

Paul Dales of Capital Economics says the increase shows that consumer spending is not collapsing:

Some of the increase in consumer credit in July may be because some households are already turning to borrowing to make ends meet. But it is more normal for overall consumer credit to weaken during economic downturns.

Admittedly, as these data are in nominal terms, they are being supported by the rise in prices and are therefore perhaps suggesting that consumer spending is more resilient than it really is.

Overall, consumer credit increased to 6.9% in July – the highest rate since March 2019 – with households borrowing an extra £1.4bn during the month, down from £1.8bn in June.

Mortgage lending for house purchase held broadly steady at 63,770, above forecasts of a drop below 62,000.

European benchmark electricity prices have eased off their record highs this morning, after the EU said it was preparing an “emergency intervention”.

The German one-year ahead electricity dropped to around €600 per MWh this morning, having hit an unprecedent – and astonishing – peak over €1000/MWh yesterday.

Ursula von der Leyen’s declaration that Brussels could cut the price of electricity by separating it from the soaring cost of gas [see opening post for explanation] seems to have calmed the market.

Additionally, there are reports that the EU is set to meet its gas storage filling goal two months ahead of target.

That would help the region cope with a tough winter, with Russia limiting supplies (including squeezing Engie this morning) and energy prices raging.

Bloomberg has the details:

Reserves in the EU were filled up to 79.4% as of Aug. 27 compared with the target of 80% by Nov. 1, according to Gas Infrastructure Europe inventory data.

The EU bolstered its storage rules earlier this year after levels last winter turned out lower than in past years, particularly in German sites controlled by Russian exporter Gazprom, a factor that added to sharp increases in energy prices.

European wholesale electricity prices are still at extremely high levels. Twelve months ago, German year-ahead electricity cost around €74 per MWh.

But at least prices have moved in the right direction for businesses and households today:

Russian energy giant Gazprom has intensified the squeeze on Europe’s energy market, by cutting supplies to France’s Engie.

Engie says it has been told that Gazprom will reduce gas deliveries starting today, due to a disagreement over some contracts.

In a statement, Engie said it had taken steps to protect itself:

“As previously announced, Engie had already secured the volumes necessary to meet its commitments towards its customers and its own requirements, and put in place several measures to significantly reduce any direct financial and physical impacts that could result from an interruption to gas supplies by Gazprom.”

France’s energy transition minister Agnes Pannier–Runacher told France Inter radio that the country must prepare for a complete shut-off:

“Very clearly Russia is using gas as a weapon of war and we must prepare for the worst case scenario of a complete interruption of supplies.

British government bonds are on course for their biggest monthly fall since the bond market crisis of 1994, reports Reuters’ David Milliken.

Bond prices have slumped in August, driving up the yield (or interest rate) on shorter-dated debt to the highest since the 2008 crisis.

It’s due to the jump in energy prices which are pushing up inflation, leading to higher interest rates, and probably more government borrowing.

Here’s the full story, and here’s a neat Twitter thread with the key points:

Rob Davies

Thousands of pubs face closure without urgent government support to soften the blow from soaring energy bills, the beer industry has warned.

The heads of six of the UK’s largest breweries said tenants were already giving notice, and that jobs are at risk across the sector.

In some cases, pubs are facing a fivefold increase in energy bills, forcing some tenants to quit their leases.

My colleague Rob Davies explains:

Unlike households, businesses do not benefit from a cap on what suppliers can charge for gas and electricity, leaving many firms facing oblivion without state intervention.

In a letter to the government and the Conservative leadership candidates, Liz Truss and Rishi Sunak, the British Beer and Pub Association said mass job losses were inevitable in the absence of help for an industry that employs 940,000 people.

Nick Mackenzie, the chief executive of the 3,100-strong pub chain Greene King, said the energy bill blow had come just as the sector was battling back from the ravages of the Covid-19 lockdowns, which hit hospitality particularly hard and left many with punishing debts.

“While the government has introduced measures to help households cope with this spike in prices, businesses are having to face this alone, and it is only going to get worse come the autumn,” Mackenzie said.

“Without immediate government intervention to support the sector, we could face the prospect of pubs being unable to pay their bills, jobs being lost and beloved locals across the country forced to close their doors, meaning all the good work done to keep pubs open during the pandemic could be wasted.”

Here’s the full story:

A fresh downgrade to British economic forecasts from Goldman Sachs added to the pound’s woes.

In a note published on Monday, Goldman predicted the UK would plunge into a recession in the fourth quarter of 2022, as surging inflation hits household consumption.

Goldman also expects the UK will keep shrinking through next year, forecasting a 0.6% contraction during 2023, a downgrade on its previous forecasts.

Its team of economists said:

“Concerns around cost-of-living pressures in the UK have continued to intensify on the back of the worsening energy crisis.

Real consumption is still likely to decline significantly.”

The recession could be even more severe and protracted if gas prices remained elevated for longer than feared, and if the government provides less fiscal support than Goldman assumed.

The pound has dropped to its lowest level in almost two and a half years, hit by recession worries and fears of more large US interest rate rises.

Sterling slipped below $1.1700 for the first time since March 2020 on Monday, as concerns over the UK’s economic outlook mounted. It has now lost over 13% of its value against the dollar since the start of this year.

Soaring energy costs are putting more pressure on Britain’s economy, hammering growth and consumer confidence and pushing businesses closer to collapse.

The likelihood of more Bank of England rate rises isn’t providing much support for sterling, points out Dean Turner of UBS:

“Interestingly, even the lofty expectations for base rates and higher bond yields…have done little to help sterling.

So if, these reverse as I expect, there will be even less reason for investors to hold the currency of a country heading for a recession.”

The pound was also caught up in the market selloff following last Friday’s hard-hitting speech by America’s top central banker.

Federal Reserve chair Jerome Powell reiterated the central bank’s commitment to fighting inflation, despite the pain caused by interest rate hikes, signalling that borrowing costs will keep rising.

That triggered a slump on Wall Street at the end of last week, and further losses yesterday.

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

With Europe’s energy crisis worsening the day, policymakers are stepping up their plans for emergency measures to curb prices as a painful winter approaches.

The European Union is preparing to intervene in the energy market, aiming to dampen soaring power costs by separating electricity costs from the soaring cost of gas.

European Commission president Ursula von der Leyen yesterday that Brussels was working on an “emergency intervention” as well as structural reforms to the power market.

Speaking in Berlin on Monday night, von der Leyen explained:

“We will have to develop an instrument, that will happen in the next days and weeks, which ensures that the gas price will no longer dominate the electricity price.

That could allow cheaper renewable energy to help set electricity prices, von der Leyen aded:

“We’ll have to ensure renewable energies are generated at lower costs, that those costs are transferred to consumers and windfall profits used to help vulnerable households.”

European electricity prices have rocketed to record highs in recent weeks, with German power for next year smashing through the €1,000 per MWh level for the first time:

Under Europe’s current market pricing system, wholesale electricity costs are based on the price of the last unit of energy bought at auction held by member states.

That means that electricity prices in the EU are driven by the “marginal” production capacity at gas power plants, which can be fired up at short notice to meet peak demand.

The Czech Republic, which holds the rotating presidency of the EU, will convene an extraordinary meeting of energy ministers on September 9th.

EU diplomats said the commission could offer a detailed plan as soon as this week, Bloomberg adds.

Von der Leyen’s comments came as the head of Shell warned the energy crisis could last for several years.

Ben van Beurden told a press conference in Norway that:

“It may well be that we will have a number of winters where we have to somehow find solutions,”

Van Beurden said solutions to the energy crisis would have to found through “efficiency savings, through rationing and a very, very quick buildout of alternatives”.

“That this is going to be somehow easy, or over, I think is a fantasy that we should put aside.

Also coming up today

BT and Openreach workers are staging fresh strikes over pay as the summer of industrial unrest across the country continues.

The Bank of England’s latest mortgage appovals data, due this morning, could show a slowdown in home loans last month. Economists predicts a small fall, to below 62,000, from around 63,700.

We also get consumer confidence figures from the US and the eurozone, and the JOLTS report showing how many job vacances are unfilled at American firms.

The agenda

• 9.30am BST: UK mortgage approvals, and consumer credit, for July

• 10am BST: Eurozone consumer, economic and business confidence surveys

• 1pm BST: German flash inflation reading for August

• 2pm BST: US house price index for June

• 3pm BST: US consumer confidence report for August

• 3pm BST: JOLTs survey of US job openings