High gas prices could last two years, warns Centrica; Whitbread sees soaring costs – business live

Oil is heading back to multi-year highs this morning, in another sign of inflationary pressures.

Brent crude, the international benchmark sourced from the North Sea, has risen to $84.20 per barrel, approaching the three-year high over $86/barrel set last October.

US crude is approaching $82/barrel – it hit seven-year highs last autumn, driven by rising demand, and the slow production increases coordinated by the Opec+ group.

The boss of the UK’s largest energy supplier has said rocketing energy prices, which are adding to the soaring cost of living for British households, could last for as long as two years, my colleague Joanna Partridge writes.

Chris O’Shea, the chief executive of British Gas owner Centrica, said the energy market “suggests that high gas prices will be here for the next 18 months to two years”.

O’Shea told the BBC there was no reason to think that gas prices would start to fall again “any time soon”.

The rising global demand for gas is partly being driven by the energy transition, according to O’Shea, as countries move away from reliance on coal and oil.

“As we move towards net zero, gas is a big transition fuel, so as you turn off coal-fired power stations in other countries, maybe there is more demand for gas,” O’Shea said.

“There isn’t an abundance of gas that you can just turn on quickly, so I can’t say that this will be done in six months, or nine months, or a year.”

However, O’Shea said he did not believe that increasing the domestic supply of gas from the North Sea would help to solve the energy crisis.

“I’m not sure an increase in UK supply would have brought the price down from £3 a therm, as it was in December, from 50p as it was a year ago.

Here’s the full story:

Related: Centrica boss says high energy bills could last two years

JD Sports Fashion has joined Sainsbury’s in lifting its full-year profit forecast ahead of market expectations, after seeing strong sale of sportswear brands.

JD saw from robust demand during the Black Friday and Christmas period, and also benefitted from America’s fiscal stimulus package, which it estimates contributed up to £100m of profits.

Following “sustained positive” consumer demand, JD now expects pre-tax profit of at least £875m in the year to 29 January 2022, ahead of current market expectations of £810m.

CEO Peter Cowgill has joined the chorus of politicians and business leaders urging chancellor Rishi Sunak to rethink looming tax rises, the Evening Standard reports.

Cowgill told the Standard:

“The imposition on businesses this year, at a time when you’ve got such wage inflation in any event, is pretty strong. You’ve got the imposition of national insurance and you’ve got the increase in corporation tax as well. That impacts on retained profits for investment.

“I would certainly question it, very much so”

Richard Lim, CEO at Retail Economics, says Sainsbury’s benefitted from customers prioritising Christmas get-togethers despite rising anxieties about the virus.

The wave of cancellations that hit hospitality firms last month also helped, as Omicron fears led people to stay (and eat) at home.

Food sales held up well against the previous year (given the restrictions in 2020) as more family gatherings took place and consumers indulged across premium lines.

“To ensure a covid-free Christmas, many people limited their social interactions in the run-up the big day, boosting home-cooked meals to the detriment of the hospitality sector. This displacement of spending from bars, restaurants and pubs supported food sales over the period.

“The retailer was also much better placed to cope with the surge in online grocery sales having invested heavily to boost capacity and improve efficiency over the last couple of years. A wave of new online grocery shoppers helped almost double sales on 2019 levels.”

Sainsbury’s is in a good position to ride out rising inflation, predicts Zoe Gillespie, investment manager at Brewin Dolphin:

“UK supermarkets faced tough comparisons against Christmas 2020, when lockdown caused a boom in food and drink sales, but the spread of the Omicron variant saw consumers stay away from bars and restaurants last year as well. Sainsbury’s is continuing to deliver strong results on the back of the range of measures it took to improve business performance.

Encouragingly, profit guidance has been lifted, cost savings are helping to stave off the effects of increased inflation, and debt reduction is ahead of schedule. Even the supermarket’s banking operation is seeing a turnaround in fortunes. Sainsbury’s is in a good position and that is being reflected in its increased market share and a share price that is up more than 50% since the very beginning of the pandemic – although, it is still off recent peaks.

While the spectre of inflation remains, Sainsbury’s has the ability to manage this better than many other businesses.”

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

The UK’s energy crisis could last for two years, Centrica chief executive Chris O’Shea has warned, in a sign that the cost of living squeeze will intensify.

Speaking to the BBC, O’Shea warned that gas prices won’t fall soon, as consumers brace for bills to jump by around 50% this spring.

O’Shea, whose firm owns British Gas, the UK’s biggest energy supplier, warned that the energy squeeze will not be short-lived, so the government needs to provide targeted help to those who will suffer most.

“The market suggests the high gas prices will be here for the next 18 months to two years.”

There’s no reason to think that energy prices will come down anytime soon.

Wholesale gas price soared last year, hitting record highs towards the end of 2021. Although they have dropped back since, prices are around four times higher than a year ago.

© Provided by The Guardian
The UK day-ahead gas price is around £2 per therm, up from 50p/therm a year ago Photograph: Refinitiv

O’Shea says the high demand for gas was partly being driven by a move away from coal and oil — creating rising demand for gas and a scramble for supplies.

“As we move towards net zero, gas is a big transition fuel.

“And so as you turn off coal-fired power stations in other countries, there isn’t an abundance of gas that you can just turn on quickly.”

But he doesn’t believe boosting supply from the North Sea as a domestic solution would have helped:

“We bring gas in from the United States, from Norway, from Europe, from Qatar, from other places. So we’re not in a position to simply have the UK as an isolated energy market. We are part of a global market.”

Bills are expected to jump by up to £700 in April after Ofgem next reviews the UK’s energy cap, taking the annual cost of electricity and gas for households on a supplier’s default tariff to £2,000, compared with £1,300 at present.

O’Shea says the government can take three steps to help:

• Defer the cost incurred by surviving suppliers from taking on customers of the many companies that have gone bust, rather than it be added to upcoming bills.
• Take the 5% VAT off energy temporarily or permanently.
• Move levies charged to fund a green transition from bills to general taxation.

Those moves, he claims, could be implemented quickly:

“And that would take care of half of the price rise.

And then you could get a further relief targeted to those households that needed most.”

Related: British Gas owner appoints Amber Rudd as a director

Pressure is mounting on the government to act, with Ofgem due to announce the price cap next month.

Last week, Liberal Democrat leader Sir Ed Davey has called for the Warm Home Discount scheme, which helps people receiving some benefits, to be expanded.

Davey argue that the Warm Home Discount should be more than doubled, from £140 to £300, and allow many more people to qualify.

Related: Protecting vulnerable from £700 hike in energy bills means hard choices now | Nils Pratley

O’Shea, though, argues that the current design of the Warm Home Discount scheme would see relief for some result in rises in everyone else’s bills.

You can read the full story here:

The cost of living squeeze means that UK households have suffered the sharpest fall in the amount of cash they have available to spend for almost eight years, as high inflation and rising energy bills hit households.

According to a report by the insurer Scottish Widows, increasing living costs at the end of last year hit people’s pockets and led to the steepest decline in cash availability since the start of 2014.

It said people were increasingly pessimistic about their future finances in 2022, according to the latest reading from its quarterly household finance index.

Related: UK households suffer biggest fall in available cash in eight years

The agenda

• 10am GMT: Eurozone industrial production for November
• 1.30pm GMT: US CPI inflation for December
• 3.30pm GMT: EIA weekly US oil inventory figures

Centrica chief Chris O’Shea also questioned whether energy producers, who have benefitted from the surge in wholesale prices, should face a windfall tax.

The Labour party have proposed a £1.2bn levy on North Sea oil and gas producers, as part of a package to help households and businesses with soaring bills.

O’Shea argues that the Treasury will already benefit from the jump in earnings:

If their profits are higher, they’ll be paying more tax. That will go into the government coffers. So there will be a tax windfall for this.

And he suggests that change to the tax regime could deter investment:

If your reaction to anything is to suddenly change the tax regime, then the only question I would say is, is that consistent with a long-term stable investment framework.

Is that consistent with a long-term stable solution, because that’s what need to ensure this never happens again.

Related: Labour proposes windfall tax on North Sea oil and gas to reduce bills

Related: Tory rejection of windfall tax on energy firms ‘beggars belief’, says Ed Miliband

Energy producers are certainly benefitting from the jump in energy prices, though.

Last November, BP CEO Bernard Looney said that soaring global commodity prices have made his energy major a “cash machine”, as it lifted its share buyback programme thanks to a sharp rise in quarterly profits.