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UK Imports From Russia Hit Record Low; Freezing UK Energy Bills ‘could Cost £100bn’ – Business Live

UK imports from Russia plunge 97% to record lowImports of goods into the UK from Russia shrank to just £33m in June, the lowest since records began in January 1997.

Thats a decrease of 96.6% compared with the average monthly imports in the 12 months before Russia invaded Ukraine invasion six months ago, in February.

Back in January and February, for example, imports from Russia were worth £1.8bn per month:

In a sign of the impact of economic sanctions, the UK didn’t import any fuels from Russia in June for the first time in at least 25 years, according to the latest research from the Office for National Statistics.

The UK announced import bans on a range of Russian products including iron and steel, silver, gold, wood products and high-end goods, and high additional tariffs on other items, following the Ukraine war.

Those sanctions, and ‘self-sanctioning’ by traders voluntarily seeking alternatives to Russian goods, both hit imports.

The ONS also reports that UK exports to Russia slightly increased in June 2022, but were 67% below their pre-invasion average:

Exports of most commodities to Russia had decreased substantially by June 2022, with machinery and transport equipment decreasing by £118 million (91.3%).

Chemicals were the only commodity exported to Russia that increased over this period, driven by an increase of £39.1 million (61.8%) in exports of medicinal and pharmaceutical products, which are exempt from sanctions.

UK sales of animal and vegetable oils and fats to Russia fell to zero in June.

Although exports to Russia slightly increased in June 2022, they dropped by £168 million (66.9%) compared with the monthly average before the Russian invasion of Ukraine. pic.twitter.com/149WDyxKMz

— Office for National Statistics (ONS) (@ONS) August 24, 2022 Key events

Iceland, Reykjavik. Photograph: Gavin Hellier/Getty ImagesOver in Reykjavík, soaring inflation has prompted Iceland’s central bank to raise borrowing costs to a six-year high.

Seðlabanki Íslands has raised Iceland’s key deposit rate by 75 basis points to 5.5%, as it tries to dampen inflationary pressures.

It’s Sedlabanki’s eighth hike since May 2021, when it became the first central bank in Western Europe to hike borrowing costs.

Announcing the move, Iceland’s monetary policy committee said the inflation outlook has continued to deteriorate.

Inflation rose to 9.9% in July and is forecast to peak at nearly 11% late this year. The bleaker inflation outlook reflects stronger economic activity than was forecast in May, as well as more persistent house price inflation and higher global inflation. In addition, inflation expectations have risen even further by most measures.

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to raise the Bank’s interest rates by 0.75 percentage points. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore be 5.5%. t.co/8G1FkcRRES pic.twitter.com/odvXAYDnY2

— Central Bank Iceland (@centralbank_is) August 24, 2022 The German government has responded to Europe’s gas crisis by approving a series of energy-saving measures, including limits on the use of lighting in public spaces.

Economy minister Robert Habeck announced the move this morning, but also warned that more is needed.

Reuters has the details:

“Overall the measures save energy. However, not to the extent that we can sit back and say, ‘That’ll do now,’” Habeck told reporters in Berlin after a meeting of the cabinet.

“They will roughly reduce gas usage by 2-2.5%,” he added.

The cabinet also on Wednesday approved legislation that will prioritise energy transport on the nation’s railways, Habeck announced together with Transport Minister Volker Wissing.

UK wholesale gas prices are rising sharply again today, after a rare dip on Tuesday.

Gas for delivery next month has jumped 10%, back towards Monday’s six-month high. At 544p per therm, it is around five-times more than a year ago.

Gas for delivery tomorrow is up 17% at 480p/therm, compared with around 100p in August 2021.

Imports of a wide range of Russian products fell by at least 90% in June, compared with their pre-Ukraine invasion levels.

There were no imports of refined oil, crude oil, gas, coal, coke and briquettes, but also the UK didn’t import any processed fertilisers, metal ores and scrap, aircraft, animal feeding stuffs or beverages from Russia in June.

The ONS explains:

Notably, there were no imports of any fuels in June 2022, with refined oils decreasing by £281 million (100%) compared with the monthly average for the 12 months to February 2022.

Imports of crude oil decreased by £105 million (100%), gas decreased by £95 million (100%) and coal, coke and briquettes decreased by £18 million (100%).

Imports of inorganic chemicals fell almost 100%, with cereals down 99% and organic chemical imports down 97%. Imports of wood and cork products fell 95%, with iron and steel imports dropping 89%.

However, imports of ‘miscellaneous metal manufactures’, and some mechanical machinery parts did rise. But the increase was small in value, driven by higher prices and additional import duties.

UK imports from Russia in June 2022 Photograph: ONSBack in the financial markets, oil continues to climb after Saudi Arabia hinted that Opec could cut production.

Brent crude has now risen back to $101.30, a three-week high, adding to yesterday’s jump.

The Brent crude oil price since June Photograph: RefinitivSusannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, points out that this could dampen hopes of cheaper petrol:

Although oil prices have dropped from February highs amid signs of the global slowdown, prospects for sustained relief from eye watering prices at the pumps still remain elusive as crude oil marches back up again over supply concerns.

UK imports from Russia plunge 97% to record lowImports of goods into the UK from Russia shrank to just £33m in June, the lowest since records began in January 1997.

Thats a decrease of 96.6% compared with the average monthly imports in the 12 months before Russia invaded Ukraine invasion six months ago, in February.

Back in January and February, for example, imports from Russia were worth £1.8bn per month:

In a sign of the impact of economic sanctions, the UK didn’t import any fuels from Russia in June for the first time in at least 25 years, according to the latest research from the Office for National Statistics.

The UK announced import bans on a range of Russian products including iron and steel, silver, gold, wood products and high-end goods, and high additional tariffs on other items, following the Ukraine war.

Those sanctions, and ‘self-sanctioning’ by traders voluntarily seeking alternatives to Russian goods, both hit imports.

The ONS also reports that UK exports to Russia slightly increased in June 2022, but were 67% below their pre-invasion average:

Exports of most commodities to Russia had decreased substantially by June 2022, with machinery and transport equipment decreasing by £118 million (91.3%).

Chemicals were the only commodity exported to Russia that increased over this period, driven by an increase of £39.1 million (61.8%) in exports of medicinal and pharmaceutical products, which are exempt from sanctions.

UK sales of animal and vegetable oils and fats to Russia fell to zero in June.

Although exports to Russia slightly increased in June 2022, they dropped by £168 million (66.9%) compared with the monthly average before the Russian invasion of Ukraine. pic.twitter.com/149WDyxKMz

— Office for National Statistics (ONS) (@ONS) August 24, 2022 UK gas producers say they have boosted domestic production by over a quarter this year, a time when cuts to Russian supplies of oil and gas sent prices soaring.

Offshore Energies UK, which represents the UK offshore energy industry, reports that gas output jumped 26% in the first half of 2022, compared with a year ago – enough to heat almost 3.5 million UK homes for a year, they say.

UK gas production rose by 3.5 billion cubic metres in January-June, to 16.831 billion cubic metres of gas, thanks to the start-up of new fields in the southern North Sea, including Harbour’s Tolmount field and IOG’s Saturn Banks project.

There has also been much less planned shutdown activity, as suppliers kept plans running to maximise energy supply.

OEUK sustainability director Mike Tholen says we must “prepare for the worst and hope for the best” to support UK energy security this winter.

“If we are to continue our efforts to protect UK gas supplies, which remains the backbone of our energy mix for electricity, heating and industrial processes, we need politicians of all parties to support energy produced here in the UK with all the benefits that brings for taxes, energy security and jobs.

It’s all the more important at a time when we can’t afford to tighten supplies even further, which is what will naturally happen if domestic production of gas isn’t maintained.”

The FT’s Chris Giles points out that the UK’s windfall tax on North Sea suppliers didn’t prevent production increasing:

UK gas supplies – a tale in two parts from our lobby group of North Sea produces

Part 1: March 2022 – windfall taxes would undermine security of supply

Part 2: August 2022 – Actually – we quite like making windfall profits even if the government takes a bigger share pic.twitter.com/qgKhQ0okIz

— Chris Giles (@ChrisGiles_) August 24, 2022 The cost of helping households and businesses through the energy price shock would lead to the third large increase in UK national debt in 15 years (following the 2008 financial crisis, and Covid-19).

But as Resolution Foundation’s Torsten Bell points out, there’s a difference this time – the cost of borrowing is going up.

How much we end up borrowing is hugely uncertain because future energy prices are. But £100bn/2 yrs is eminently plausible given 1) we’re £30bn+ in already 2) lots more will be required given the catastrophe to come 3) no sign of solidarity taxes that are alternative to borrowing t.co/mGGDEJuLzK

— Torsten Bell (@TorstenBell) August 23, 2022 I should add, this third major ratchet of public debt in 15 years won’t be like the last two – after the financial crisis + in the pandemic we got used to debt rising but debt interest costs falling. This time both will be heading up together

— Torsten Bell (@TorstenBell) August 23, 2022 The yield, or interest rate, on 10-year UK government bonds is over 2.5% today, compared with less than 0.5% through most of 2020.

Plus, rising inflation is pushing up the interest rate on index-linked gilts, adding to the deficit.

That world is obviously the one when the interactions between fiscal/monetary policy get… messy

— Torsten Bell (@TorstenBell) August 23, 2022 Sunak: important to get grip on inflation

Jamie Grierson

Tory leadership underdog, Rishi Sunak, also warned that failing to get to grips with inflation would be damaging, as he rejected calls from senior energy industry figures to freeze the energy price cap (see last post).

He told the Today Programme that he was “sceptical” about plans that appeared to be complacent about the risk to inflation, and which would drive up government borrowing.

“I think that is a gamble with savings, with their pensions, with mortgage rates, in making inflation become more embedded, and I don’t think that will help anybody if that happens because inflation makes everybody poorer, it’s pernicious. I want to get a grip of inflation quickly.”

[UK inflation is already a 40-year high of 10.1%, with investment bank Citi warning it could hit 18% early next year]

Shifting his sights on his opponent and frontrunner for the Conservative leadership and prime minister, Liz Truss, he said he was “nervous and sceptical about plans that are complacent about that risk”.

“But also those plans that seem to think and seem to suggest there are no trade offs involved in governing,” he went on.

“Governing is hard, Governing involves choices, it involves difficult trade offs.

“Plans whether they come from my opponent or energy companies or anyone else that seem to suggest you can have absolutely everything you want, you don’t have to make a difficult choice, you can have lots of tax cuts, you can help people with the cost of living, borrowing doesn’t matter, inflation will take care of itself, that all sounds a bit too good to be true, and I think most people listening most things when they are too good to be true they probably are.”

More than three million households in Britain were still waiting to receive a £150 payment to help with energy costs on 1 July, a BBC Freedom Of Information (FOI) request has revealed.

That rebate was announced in February, when Rishi Sunak launched a £9bn package to cushion a £700-a-year rise in energy bills in April.

The BBC explains:

Councils were expected to start paying the £150 rebates from April, but have until September to do so.

Halfway through that period, 97% of households who pay by direct debit in England and Wales had got the payment.

But only half of those who pay in other ways had received it.

This group typically includes lower-income households.

The payment is available to homes in council tax bands A to D, or up to E if a householder has a disability.

Sunak: Borrowing many tens of billions to freeze bills would be riskyRishi Sunak, one of the two candidates to succeed Boris Johnson as prime minister, has criticised proposals for a blanket freeze on energy bills.

Speaking on Radio 4’s Today Programme, Sunak warned that high energy costs are a challenge that will be with us for some time – and said he would focus help on the poorest households.

Asked why he didn’t favour a freeze on energy bills (as proposed by Scottish Power, and both the Labour and Liberal Democrat parties), Sunak argued that the cost would be a risk, given the ‘scale and duration’ of the challenge.

Sunak said:

We need to make sure that what we’re doing is not only affordable, but also isn’t going to make inflation worse.

At a time when we’re already borrowing an enormous amount of money, I think embarking on policies and programmes that add not just tens of billions, but tens and tens and tens and tens of billions of pounds on a permanent basis to our borrowing are risky.

Sunak’s plan is to cut VAT on energy bills, and building on his existing support package with more support for lower-income households and pensioners.

The former chancellor said that his cost-of-living package, announced back in May, had provided ‘considerable support’ of up to £1,2000 for the most vulnerable, which at the time would have covered the rise in bills [but is now inadequate].

That’s my track record on this, and as prime minister I would do exactly the same thing.

Is that a hint that poorest households could be shielded from rising bills under a Sunak government?

Has Rishi Sunak dropped a big hint he would basically entirely cover the energy bills rise for the poorest?

Says as chancellor he stumped up £1,200 for the poorest – around the same as the price rise then

“That’s my track record – as PM I would do exactly the same thing”

— Kate Ferguson (@kateferguson4) August 24, 2022 Although he does add that you can’t keep borrowing tens of billions without fuelling already rocketing inflation

— Kate Ferguson (@kateferguson4) August 24, 2022 Should Brits be told to use less energy this winter to ameliorate rocketing bills?

Rishi Sunak: “We have to look at all options”

— Kate Ferguson (@kateferguson4) August 24, 2022 The Institute for Government also warned that more energy bill support will be needed beyond this year, costing tens of billions of pounds more.

In their new paper outlining the government’s options, they say:

So far support is all focused on winter 2022/23, but current projections are for energy prices to be just as high, if not higher, next year.

The new prime minister will need to be ready to provide further support again. Offsetting the same proportion of bills next year would cost around £90bn. Given how long the crisis is expected to last, the government should also look at other measures to deal with the high energy bills, including investing in energy efficiency.

Rowena Mason

Ministers could face an additional £23bn price tag for covering extra household energy costs of £900 this autumn, rising to £90bn next year, a new paper by the Institute for Government has found.

The paper, looking at the options for Liz Truss or Rishi Sunak in No 10, also warned the government should plan for prolonged rises in energy bills by going a lot further in making public appeals to use less gas – for example by informing consumers about the cost savings from turning down thermostats – and in committing to building more energy efficient homes to help protect consumers.

No 10 and Kwasi Kwarteng, the business secretary and close ally of Truss, have been resisting appeals to the public to use less energy. However, the next prime minister, likely to be Truss, faces some very difficult choices on entering office on how far to subsidise energy bills.

Here’s the full story:

The BBC’s Simon Jack has more details of Scottish Power’s pitch to ministers:

3/ …for the next two years.

£100 billion is Scottish Power’s best estimate of the difference between what it will actually cost to buy the energy and the current cap of £1971.

Sources close to the company said that Kwasi Kwarteng, tipped to be the next Chancellor….

— Simon Jack (@BBCSimonJack) August 23, 2022 4/ ..if Liz Truss is next PM, was broadly receptive to the idea. Sources close to Kwasi Kwarteng wouldn’t be drawn on his enthusiasm. “We had a meeting about it – that’s all”.

The so called deficit fund would be repaid through bills over the next 20 or so years…

— Simon Jack (@BBCSimonJack) August 23, 2022 5/ The presence of Ress-Mogg was seen as important as he’s a key ally of Liz Truss,

Energy cos are urging ministers to consider energy crisis needing COVID scale intervention. The furlough scheme which paid the wages of 11 million people cost around £70 billion.

— Simon Jack (@BBCSimonJack) August 23, 2022 Keith Anderson, Scottish Power’s CEO, has STV News that the cost of energy must be frozen “now” ahead of a meeting with First Minister Nicola Sturgeon yesterday.

He proposed the same plan he set out before UK business secretary Kwasi Kwarteng and fellow UK minister Jacob Rees-Mogg, to freeze bills at current levels – at a cost of £100bn.

STV says:

Scottish Power has proposed a £100bn plan to freeze energy bills for two years in the face of a crisis that is “bigger than the Covid pandemic”.

The energy giant, which supplies gas and electricity to more than five million customers, has warned that the looming jump in energy prices will be “truly horrific” for many people.

Shielding UK households from fuel bills crisis ‘forecast to cost £100bn’The head of one of the UK’s largest energy groups is proposing a £100bn rescue plan to protect households from rising bills over the next two years.

Keith Anderson, chief executive of Scottish Power, has proposed capping household energy bills at about £2,000 a year.

Anderson’s proposal, which the Financial Times reports was made to business secretary Kwasi Kwarteng last week, underlines the scale of the crisis engulfing Britain from the unprecedented surge in gas prices.

Under the Scottish Power proposal, suppliers would cover the gap between the cap and the wholesale price of gas and electricity by borrowing from a “deficit fund”, which the government would arrange through commercial banks.

The cost would then be gradually paid off by the public – with through government borrowing or spread acoss bills (or a combination of the two).

The FT adds that:

People familiar with the discussions said the “mood music” in the government had shifted in recent weeks as gas prices have climbed, with Russia cutting supplies to Europe in retaliation for sanctions related to its invasion of Ukraine.

Ofgem is due to announce on Friday that the UK’s energy price cap will rise by roughly 80% in October, to around £3,550, from £1,971 today.

The cap is expected to jump again in 2023, with analysts at Cornwall Insight forecasting a rise to £4,101 in January – which could drive UK inflation as high as 18% early next year.

Introduction: Brent crude back at $100/barrel on Opec cut hintGood morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

The threat of Opec production cuts has lifted Brent crude back to $100 per barrel, adding to the inflationary pressures on economies.

The benchmark oil price settled over $100/barrel for the first time in over a week last night, after Saudi Arabia dropped a heavy hint that the Opec group could cut production.

Brent had fallen as low as $91.50 earlier this month, down from $125/barrel in June.

And this has prompted Saudi energy minister prince Abdulaziz bin Salman to float the idea of OPEC+ output cuts to support prices.

The Brent crude oil price during 2022 Photograph: RefinitivPrince Abdulaziz warned there was “extreme” volatility and lack of liquidity in the oil market. That (he argued) means futures prices don’t reflect the underlying fundamentals of supply and demand, which could prompt the group to tighten production when it meets next month to consider output targets.

Prince Abdulaziz added:

“Witnessing this recent harmful volatility disturb the basic functions of the market and undermine the stability of oil markets will only strengthen our resolve.”

Oil markets seemed to get the message, with Brent crude jumping almost 4% on Tuesday, and holding its gains this morning.

As I end my shift Brent crude is up 3% and within sight of $100, a day after the Saudi energy minister raised the prospect of an #OPEC+ cut. Was this classic OPEC jawboning? Don’t know but, from an OPEC perspective, it seems to have worked! 🛢️📈

— Alex Lawler (@AlexLawler100) August 23, 2022 David Madden, Market Analyst at Equiti Capital, suggests any Opec move could depend on the progress of nuclear talks with Iran:

WTI and Brent crude are powering ahead as OPEC+ announced that it might consider cutting oil production, if or when, Iran boosts its output.

Western governments are engaging in talks with Iran about its nuclear programme, it is understood that little progress has been made, so OPEC might not be forced to act.

Also coming up todayThe TUC is pushing for the UK’s minimum wage to be increased to £15 an hour, as soon as possible, to help millions of low-paid workers struggling amid the cost of living crisis.

My colleague Richard Partington has the details:

In a move that opens a fresh policy gap between unions and Keir Starmer’s Labour party, the TUC has thrown its weight behind calls for a more ambitious legal floor on pay rates. The union body said the government needed to draw up plans to get wages rising as workers suffer the biggest hit to living standards on record.

It said too many workers were living “wage packet to wage packet”, and a £15 minimum should be in place by at least 2030 but could be achieved sooner with a government that was serious about getting wages rising after years of sluggish pay growth.

The minimum wage is now set at £9.50 for those aged 23 and over, with lower rates for those who are younger.

The agenda 9.30am BST: The impact of sanctions on UK trade with Russia: June 2022 (from the Office for National Statistics)

Noon: Weekly US Mortgage Applications

1.30pm BST: US Durable Goods Orders

3pm BST: US pending homes sales

3.30pm BST: US crude oil inventories

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