It’s a big day in the markets with Liz Truss set to confirm her energy plans. The proposals are set to place a huge burden on the UK’s already strained finances.
UK energy bills are set to rise to more than £3,500 a year for the average household from October, with Truss expected to outline plans for costs to be frozen at these levels later on today.
“While in theory this could be perceived as a clear positive for the UK economy in the near-term and provide a source of encouragement for the pound, as it would help stave off the risk of a deep recession, investors are yet to see it that way,” commented Matthew Ryan, Head of Market Strategy at global financial services firm Ebury, this morning.
“The issue for market participants is that such enormous spending would place a huge burden on the UK’s already strained finances, merely swapping near-term gain for long-term hardship,.”Matthew Ryan
“It’s also worth stressing that details on the measures have also so far been relatively scarce, so markets may be holding out for more concrete information before committing to positions in either direction,” Ryan shared.
He continued: “Sterling could bounce on confirmation of an energy bill freeze later today, though the reaction in markets will be highly dependent on how investors perceive the impact on UK inflation, the risk of recession and Bank of England monetary policy.”
Ryan stressed that investors that were hoping for some sort of optimistic U-turn from Bank of England policymakers during yesterday’s hearings in the House of Commons “were left disappointed.”
“MPC members noted that UK inflation could slow under the new PM’s plans, although it was too soon to say what that would mean for interest rates and that a recession was still the most likely outcome,” he concluded.