Pound sinks below $1.16 as UK ‘faces deepest living standards squeeze in a century’ – business live

Ovo Energy boss proposes plan to fight household bill crisis

Kalyeena Makortoff

The chief executive of UK’s third largest energy supplier, Ovo Energy, has called for the government to introduce a “progressive” scheme for energy bills that would give greater support for poor households but taper off for richer users, similar to the UK’s tax system.

The proposal for a banded energy subsidy is part of a 10-point plan put forward by Stephen Fitzpatrick, whose energy company serves 4.5 million customers.

It would involve reducing the price of energy, but only for a limited amount of use per household, meaning that energy consumption beyond that level would be charged at a higher price.

This would aim to prioritise support for poorer customers, since higher-income households typically use more energy, he said.

The proposal is a variation of the “deficit tariff scheme” already backed by energy firms including Scottish Power, which would involve freezing prices at current levels and cover the difference through a central fund repaid over a number of years.

“The scale of the shock of the recent price rise this winter threatens to tip the economy into a deep recession and will be catastrophic for millions of low income households,” Fitzpatrick said on Thursday.

“It is right that we find ways to smooth further price increases in the short term.

“But this scheme can’t be open-ended and unlimited. It should be progressive just like the tax system.”

Here’s the full story:

Here are the main findings from Resolution Foundation’s report into the UK’s living standards crisis:

The report also shows how boosting productivity – a long term problem for the UK – would be much more beneficial for living standards than abolishing the increase in National Insurance rates, as Liz Truss has pledged.

[The opening post has more details:]

UK house prices continued to rise last month, despite the cost of living squeeze hitting households, according to lender Nationwide.

Prices rose by 0.8% in August, much more than expected, as the market continued to defy the economic problems hitting Britain.

The annual rate of growth slowed to 10.0%, from 11% in July, taking the average price to a new record of £273,751. That means the average house price has increased by almost £50,000 in the last two years.

Robert Gardner, Nationwide’s chief economist, predicts the market could slow, as inflation climbs:

There are signs that the housing market is losing some momentum, with surveyors reporting fewer new buyer enquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels. However, the slowdown to date has been modest, and combined with a shortage of stock on the market, has meant that price growth has remained firm.

“We expect the market to slow further as pressure on household budgets intensifies in the coming quarters, with inflation set remain in double digits into next year.

Moreover, the Bank of England is widely expected to continue raising interest rates, which will also exert a cooling impact on the market if this feeds through to mortgage rates, which have already increased noticeably in recent months.

Shares in consumer giant Reckitt Benckiser have slid 5.5% after it announced chief executive Laxman Narasimhan is stepping down.

Narasimhan will leave at the end of the month, with senior independent director Nicandro Durante stepping in while the board “evaluates and selects the future leadership”.

Reckitt, the firm behind Dettol, Nurofen and Durex, told shareholders that:

Laxman has decided for personal and family reasons to relocate back to the United States and has been approached for an opportunity that enables him to live there.

Narasimhan has served three years as Reckitt’s CEO, steering the company though the pandemic, and then the economic shock from the Ukraine war, which led to price rises:

Victoria Scholar, head of investment at interactive investor says:

Despite significant share price moves in both directions, the stock is little changed since the start of his time as CEO.

Having said that, the consumer goods giant has successfully navigated the post-covid challenging inflationary environment by raising prices for shoppers to successfully offset price pressures without denting consumer demand.

Sterling has fallen to its lowest level against the US dollar since the pandemic crash in March 2020, as anxiety over the UK economy rises.

The pound has dropped as low as $1.1565 this morning, as the energy crisis hammers businesses and consumers, hurting Britain’s economic outlook.

The selloff comes after the pound racked up its worst month against the dollar since October 2016.

Fears that the UK is heading into recession pushed sterling down by 4.5% against the dollar during August; the dollar continues to strengthen as America’s central bank vows to keep raising interest rates.

Naeem Aslam of Avatrade says sterling is getting “absolutely battered” against the dollar, led by concerns over the cost of living crisis.

Consumers in the UK are squeezed to such a level that we have not seen in nearly a century, and the hope is that the new Prime Minister will deliver some sort of relief package, which should be in billions, to ease off the current crisis.

Liz Truss, the most favorite among bookies as the next Prime Minister, has already ruled out any tax hikes for this year or rationing of energy in the coming winter. Her second promise look shaky because the energy crisis is pretty much unavoidable, and it would be highly difficult to avoid energy rationing.

Nonetheless, the most important thing which matters for consumers is not energy rationing but, in fact, a support package that can ease off their living standards.

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

Britain is facing the biggest squeeze in living standards for a century, a new report into the challenge facing the next Prime Minister shows.

In a desperately worrying forecast, real household disposable incomes are on track to fall by 10% over this year and next. With inflation surging, rising prices mean all the real pay growth since 2003 will have been wiped out.

Resolution Foundation fears that the number of people living in absolute poverty is set to rise by three million, to 14 million people in 2023-24.

And one in three children could fall into relative poverty, the highest level since the peaks of the 1990s.

Resolution warns that Britain faces a bleak winter for living standards – with the living standards crisis set to stretch well beyond this winter into next year and 2024.

Real earnings, which are already falling at their fastest rate since the Queen’s Silver Jubilee in 1977, are forecast to continue falling until at least mid-2023, by which time all real pay growth since 2003 will have been wiped out.

Lalitha Try, Researcher at the Resolution Foundation, says ‘radical action’ is needed by the next PM:

“Britain is already experiencing the biggest fall in real pay since 1977, and a tough winter looms as energy bills hit £500 a month. With high inflation likely to stay with us for much of next year, the outlook for living standards is frankly terrifying.

“Typical households are on course to see their real incomes fall by £3,000 over the next two years – the biggest squeeze in at least a century – while three million extra people could fall into absolute poverty.

“No responsible government could accept such an outlook, so radical policy action is required to address it. We are going to need an energy support package worth tens of billions of pounds, coupled with increasing benefits next year by October’s inflation rate.

“The new Prime Minister also needs to improve Britain’s longer-term outlook, which can only be achieved by a new economic strategy that delivers higher productivity and strong growth.”

Here’s the full story:

Also coming up today

The latest manufacturing surveys are likely to confirm that UK and eurozone factory activity contracted last month.

European stock markets will start September with losses, after finishing August on the back foot. The FTSE 100 fell 1% yesterday, as government bond markets weakened.

Worries about the global economy, as inflation accelerates, are hitting stocks and bonds.

The last four days has seen a sharp change in sentiment with yields jumping sharply across the board since Fed chair Jerome Powell’s hawkish Jackson Hole speech, says Michael Hewson of CMC Markets:

While US markets fell sharply in August, we’ve also seen sharp declines in global bond markets, with US yields jumping sharply higher

While US yields have seen a sharp rise, these gains have been outpaced by a surge in German and UK yields both on the short and the long end, as markets increasingly price in the prospect of much higher interest rates, as central banks signal a singular determination to rein in sharply rising inflation.

The agenda

• 7am BST: Nationwide’s UK house price index for August

• 9am BST: Eurozone manufacturing PMI for August

• 9.30am BST: UK manufacturing PMI for August

• 9.30am BST: ONS report into GDP, UK regions and countries: October to December 2021

• 9.30am BST: Weekly realtime data showing economic activity and social change in the UK.

• 1.30pm BST: US weekly jobless figues