END OF AN ERA AS THE UK MOURNS THE DEATH OF QUEEN ELIZABETH II

END OF AN ERA AS THE UK MOURNS THE DEATH OF QUEEN ELIZABETH II

This week all other news was overshadowed by the sad passing of Queen Elizabeth II. In a reign marked by periods of turmoil and hostility, rapid change and often amazing progress, the queen was more than a head of state but a source of stability, perhaps unnoticed until its absence. A unifying figure in an increasingly fractured country, a constant amidst rising uncertainty and a symbol of strength as we face difficulty. While the institution she embodied – perhaps more than any other monarch since Victoria – endures, it will never be the same.

As tributes pour in from around the globe, sometimes from places that are quite surprising, it reminds us that while notionally a figurehead, in reality, she was one of the most experienced diplomats in the world. Her reign covered 15 UK prime ministers, she met 13 US presidents and was head of state of 15 countries. Respected and admired by allies and adversaries alike. A loss for all of us.

UK: STERLING DIPS AS TRUSS UNVEILS ENERGY PLAN

The new prime minister wasted no time in announcing plans to tackle the UK’s energy crisis. Liz Truss’s plan will freeze domestic energy bills at current levels for two years by capping the price energy companies can charge with the government paying the difference. Businesses will have their bills capped for six months. Truss has stuck to her campaign pledge to avoid a further windfall tax on energy producers and intends to pay for the support with additional government borrowing. Truss also restated her intention to cut taxes, including reversing April’s increase to National Insurance.

Initial estimates put the cost of Truss’s assistance at £150bn and the prospect of a surge in additional gilt issuance has contributed to a further sell-off this week. Tax cuts could also raise inflationary pressure and has led to speculation that the Bank of England may have to raise rates more aggressively. Capping energy will reduce UK inflation but sterling has fallen further this week – partly due to dollar strength – which could add to imported inflation.

COMMODITIES: OIL & GAS FALL AS LOOMING RECESSION HITS DEMAND

The EU has put an energy price cap at the heart of its plans to tackle the energy crisis. The proposal would see energy producers paid a per unit amount at roughly half the current rate with governments picking up the bill. European leaders also agreed in principle to a price cap for Russian gas following the G7’s plan to impose a cap on Russian oil.

As expected, Russia did not reopen the Nord Stream 1 pipeline and said it would remain closed until EU sanctions were lifted. Meanwhile OPEC announced it is reducing its production target – reversing the 100,000 barrel a day increase it agreed last month – as it attempts to stabilise oil prices. However, energy markets are looking at the prospect of recession in the west and weaker Chinese demand due to new anti-Covid lockdowns. Gas and oil prices are down sharply in recent weeks. Brent Crude fell to $87 this week down from $120 a barrel in June and the price of natural gas in Europe is down around 35% from recent highs.

HOUSING: SIGNS OF WEAKNESS AS RISING COSTS DETER BUYERS

Estate agents have reported a steep drop in new buyers as rising mortgage rates and the rapidly rising cost of living affect demand. The Royal Institution of Chartered Surveyors said new buyer registrations fell 40% in August as it predicted a falling volume of house sales over the next 12 months and house price inflation slowing to 0.3%. The average house price increased 0.4% in August according to the Halifax House Price index but the annual rate has begun to slow.

The falling number of buyers has been put down to the increased cost of mortgage borrowing, as well as inflation eroding affordability. The average rate for a 2-year fixed mortgage has risen above 4% for the first time since 2013. Barratt Developments reported reservations for new homes continue to fall and are now below pre-pandemic levels. Construction PMIs also point to headwinds for the industry. Although the reading for August rose to 49.2, new orders remain at their lowest level since the early months of the Covid pandemic.