Closing summary
Time to wrap up
Economists are hopeful that Liz Truss’s planned energy support package can protect the UK economy from a long recession.
Although the details of the plan are yet to be announced, City experts predict that freezing energy bills for consumers could mean a shallower downturn.
Capital Economists estimate that inflation could now peak in October, rather than surging again in January.
Liz Truss is expected to announce plans to freeze energy bills at about £2,500 a year, with households also receiving the previously announced £400 rebate.
Truss is also reportedly pondering a scheme to freeze wholesale gas prices for businesses, at an estimated £40bn cost.
The package could mean the Bank of England’s recent gloomy economic forecasts, for a recession lasting more than a year, could be too pessimistic.
Torsten Bell of Resolution Foundation told MPs that support for households and businesses would help the economy, but added:
“I think you’d be optimistic to be very confident you can avoid a recession, given what’s happening to Europe.”
Fears that the plan could drive up the budget deficit have pushed UK borrowing cost sharply higher. The benchmark 10-year gilt yield, which rises when prices fall, surged over 3% to an 11-year high.
The pound got a small boost, though, rising from yesterday’s 29-month lows to around $1.16.
Ministers are also pondering a windfall tax raid on energy producers, to help fund support to bring down bills.
Parliaments’ BEIS committee also heard that the cost of living crisis was causing real misery.
Citizens Advice is already being contacted by people who have lost access to gas and electricity
The Food and Drink Federation warned that some businesses won’t survive the winter without help, which could lead to gaps on shelves
Small businesses are holding off agreeing new contracts in October, in the hope that ministers will provide support
Shares in UK retailers, and consumer-facing firms such as pizza-delivery firm Domino’s and high street bakery chain Greggs rallied, on hopes that consumers will have more to spend if energy bills are capped.
Pub chains also had a good day, as their energy bills could be lowered under that £40bn package of business aid under consideration.
In other news….
Building firms suffered a squeeze on activity for a second month in a row during August as new orders slowed to their lowest level since the summer of 2020 in the latest sign that a UK recession is looming.
More shared “banking hubs” are to be rolled out across the UK to help communities hit by branch and ATM closures to get continued access to cash.
Go-Ahead, one of the UK’s biggest transport companies, has been hit by a cyber attack affecting software used to schedule bus drivers and services.
A second UK train operator has said it will slash its schedules because of sickness and “industrial relations issues”, cutting some services by almost a quarter. TransPennine Express is to bring in an emergency timetable from next Monday.
Liz Truss is addressing the nation now, from outside Downing Street, and promising to take action on energy bills ‘this week’.
Our Politics Liveblog has all the action.
Updated
UK gilt yield curve inverted on economic fears
The UK bond market is also flashing warning signs that Britain could fall into recession.
The yield, or interest rate, on two-year UK government bonds is above the equivalent 10-year gilt yield, despite today’s selloff in benchmark bonds.
In normal times, investors would seek a higher rate of return on longer-dated bonds, to reflect the additional uncertainty. But tonight, two-year gilts are yielding 3.159%, while 10-year gilts are trading around 3.5%.
That is traditionally a sign that investors are expecting lower growth in the future, as the Evening Standard explains:
The yield curve inverted in this way just before the 2008 financial crash, as investors who saw that trouble was coming parked money with the government for the long-term.
The yield curve was also ‘inverted’ last week, and the US bond market has shown similar moves, on concerns that higher interest rates could cause a recession across the Atlantic.
UK sovereign bond yield curve still "inverted" this morning (data from Refinitiv).
— Ben Chu (@BenChu_) August 31, 2022
2 year Gilt yields (3.021%) trading higher than 10 year yields (2.805%)... pic.twitter.com/crNNBAZEzj
