City Watch: Government needs to see the light on energy prices, says Charles Sylvester of Charles Stanley & Co
AS MOST of George Osborne’s budget was leaked to the press by the Liberal Democrats prior to his speech, journalists were eager to rake through what was left to see if there was anything that could cause a stir.
We have duly been subjected to “pastygate” and “grannygate” over the course of the last few days, two rather small and irrelevant measures which in normal circumstances would have been glossed over and forgotten about in five minutes.
Despite all these shenanigans, the Budget itself was fiscally neutral although it did include some rebalancing of tax from the rich to those on low/middle incomes. However the main point was that the economic outlook has stabilised, with a few upgrades in growth forecasts from some private economists.
The UK is of course still on negative watch, meaning that there is a 50% chance of a downgrade, but for now maintains its AAA rating because of “the progress made in reducing the government structural deficit”.
UK growth in 2012 and beyond is highly dependent on some key factors such as the oil price, inflation, bank lending and indeed the eurozone crisis. So far this year the oil price has remained elevated near the US$125 per barrel driven up by supply disruptions and rising tension over Iran’s uranium enrichment programme.
Currently monetary policy appears to be driven by low growth rather than the outlook for inflation although low inflation is important for the economic recovery as it reduces the pressure on households and business.
Over in the US however, the economy is starting to show a number of positive signs; one of the main reasons for this is that they have created a sudden supply of cheap energy via the shale gas phenomenon, and of course low energy costs are vitally important for manufacturing firms which is perhaps something that the British government might consider when it talks about retaining our manufacturing base.
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Fortunately, last September the US company Cuadrilla announced that it had found a vast shale gas field beneath and around Blackpool. Unlike nuclear and the unavoidably intermittent wind and solar alternatives, taking advantage of this sustainable energy will not require a penny of public subsidy.
Let us hope that the Government can see the light.