Gas dispute hits growth
THE global economic fallout from Russia’s war on Ukraine becomes more toxic. Russia’s total output of $1.6 trillion is in free fall and only a fraction of neighbours in the EU.
But its capacity to ruin all of our lives should not be underestimated.
Just how vulnerable prosperity is to diktats from the Kremlin is demonstrated by the decision of Gazprom to suspend supplies of gas to Poland and Bulgaria because they are not complying with demand for payment in roubles.
This will become a headache for all 27 EU members as the Commission wrestles with details of sanctions, requests for roubles and weaning the continent off Russian oil and gas. The immediate impact was to force Europe’s wholesale gas price up by 20pc.
It is already seven times higher than a year ago!
On the foreign exchanges, the dollar climbed to a five-year high against the euro, insulated as the US is by domestic energy abundance and the prospect of a jump in american interest rates.
Every rise in the gas price acts as a tax on EU and British consumers and businesses and is a blow to buying power. Consumer confidence in Germany plunged to a historic low level in May, even lower than at the start of Covid.
This came as the German government cut its growth forecast for this year from 3.6pc in January to 2.2pc. Hopes of a post-Covid bounce for Europe’s locomotive economy are vanishing. The prospects of a global recession, as central banks seek to combat inflation, becomes ever more likely.
a far bigger mistake than the tax affairs of Rishi Sunak’s spouse is the Chancellor’s effort to lower the budget deficit by taxing the nation to death.
ahead of the big hikes to come, UK tax revenues in 2021-22 (in spite of Covid) soared by £91.4bn to a record £619.9bn.
Tightening fiscal policy into an economic slowdown, or possibly a slump, is not a great strategy.
Lloyds lessons
aS a long-standing Lloyds Bank shareholder, one should be grateful that after years of punishment following the 2008 HBOS takeover, progress is being made.
Profits were ahead of expectations in the first quarter in spite of the largely domestic bank setting aside an extra £177m to protect itself from credit losses arising from the surge in the cost of living.
a sign of strain on customers is the 1.2m who chose to cancel subscriptions.
Even though first quarter earnings are down on last year, rising interest rates will provide a margin boost. High Street banks benefit from the ‘endowment’ effect, interest earned on balances in current accounts, and the opportunity which rising interest rates offer to widen the gap between the yield on savings and interest charges for mortgage and other lending.
at Lloyds, chief executive Charlie nunn has set his sights on more digital banking and fee income from wealth management.
Clearly, in current uncertain circumstances, keeping the bank safe will be nunn’s priority. But what Lloyds and the other High Street players need to do is reconnect with customers. The most recent round of 60 branch closures should be rescinded, or there should be a pledge to relocate in busier locations.
Few citizens have a favourable view of banks. The simple task of changing old banknotes for new required a three-mile drive to a Lloyds branch closed early afternoon for unexplained reasons.
a close friend, having carefully set up a trust fund for a daughter, was flabbergasted to be told by his bank (not Lloyds) that they were not doing that any more. Each week I receive letters from readers who, having bought shares through their bank some years ago and wanting to sell, are told such a service no longer exists.
The UK bank which places its branch network first, and focuses on servicing the multiple needs of citizens rather than fixating on quarterly returns, will clean up.
Walmsley booster
aCTIvISTS may be a nuisance, but they can sharpen performance. Glaxosmithkline’s strong first quarter boosted by the Shingrix vaccine for shingles and Covid treatment Xevudy should strengthen Emma Walmsley’s grip on the pharma arm. This ahead of the planned separation and float of healthcare venture Haleon in July. The market is taking the pledge of sales lift of 5pc to 7pc in 2022 seriously. Pressure by Elliott helps the medicine go down.