Euro hits 20-year low, pound slides and gas price jumps as Russian pipe shutdown rocks markets – business live | Business

Gas prices surged on Monday and the pound and euro slumped after Russia shut down a big pipeline indefinitely.

Russia has used its control of gas supplies to exert pressure on European countries in retaliation against sanctions imposed after its invasion of Ukraine. Gazprom, the Russian state-controlled gas company, closed the Nord Stream 1 pipeline from Russia to Germany on Friday, saying it had found a leak requiring repair.

The threatened cuts to supplies of gas from Russia have prompted a scramble by European countries to store as much gas as possible before winter, as well as efforts to find alternative supplies.

However, the prospect of Russia cutting off an important pipeline completely caused prices to increase on Monday, as investors brace for severe shortages. The contract for gas delivery next month in the UK soared by 35%, to 550p a therm. That was an increase from the 410p a therm cost on Friday afternoon, and approaching the five-month high of nearly 650p set last month.

Winter gas prices were also up sharply. The wholesale UK gas contract for November jumped 27% to 638p a therm on Monday morning, while the December contract rose 26% to 720p a therm. Both are near last month’s record highs.

The benchmark Dutch TTF October gas contract rose by 30%, up €62 to €272 a megawatt hour.

Here’s the full story:

Rupert Jones

Motorists received a “raw deal” at the pumps despite a record petrol price drop last month, according to the RAC.

The average price of a litre of unleaded dipped below 170p (169.8p) at the end of August for the first time since May, with price cuts made by retailers in recent weeks resulting in the typical cost of filling a 55-litre petrol car falling from £100.16 at the start of the month to £93.39 at the end.

But the motoring organisation said it believed average forecourt petrol prices should be about 161p based on current wholesale costs.

The pound is little changed, hovering around $1.15 against the dollar, on the news that Liz Truss will become the UK’s next prime minister.

She’s beaten Rishi Sunak, as expected, to become the next Conservative Party leader, by 81,326 votes to 60,399 – closer than some forecasts.

But that’s still left sterling close to the 29-month low hit this morning.

Truss will become PM tomorrow, and take on an in-tray bulging with serious problems, Including the energy crisis.

Truss is speaking now, and says she will deal with the crisis in people’s energy bills, as well as delivering a bold plan to cut taxes and grow the economy.

Our Politics Liveblog has all the details.

The euro has recovered some of this morning’s losses, but it still languishing below parity against the strong US dollar.

The single currency is trading around $0.99, having hit two-decade lows in early trading.

Thanim Islam, market strategist at international business payments firm Equals Money, says the gas crisis will continue to hurt the euro:

Whilst Germany has been preparing for a total shut-off of gas supplies from Russia by looking for alternative sources as well as having gas stores at 85% of capacity, the news is likely to weigh in on the euro over coming months. With risks of a recession rising and raising the prospects of rationing in the Winter.

Sterling has nudged back to $1.15, having hit its lowest level since March 2020 this morning. At one point, the pound came to its lowest level against the dollar since 1985.

It’s important to remember that the dollar is at 20-year highs against a basket of currencies, lifted by the prospect of higher US interest rates (and because America is less hurt by the energy crisis than Europe).

Economist Julian Jessop argues that we’re not facing a sterling crisis:

The Kremlin has blamed Western sanctions for a complete shutdown of the Nord Stream 1 gas pipeline between Russia and Germany, Reuters reports.

In a conference call with reporters, Kremlin spokesman Dmitry Peskov said sanctions were “causing chaos” in terms of maintenance work on the pipeline and rejected claims Russia had turned off supplies to Europe as a political move.

Peskov said:

“Problems with gas supply arose because of the sanctions imposed on our country by Western states, including Germany and Britain.

“There are no other reasons that lead to problems with supplies.

Peskov said that if sanctions were lifted, the repair work could be completed easily and gas flows could resume.

Last month German Chancellor Olaf Scholz posed with a Nord Stream 1 turbine which has been serviced in Canada, but was now at a Siemens Energy factory in Muelheim an der Ruhr.

Scholz said there was no reason the stranded turbine couldn’t be returned to Russia, while Moscow blamed a lack of documentation….

The British wholesale gas contract for immediate delivery has jumped 20%, to 360p per therm.

Winter gas prices are rising too – which will bring even more pain to businesses and consumers if they remain at these levels (or rise even higher).

The wholesale UK gas contract for November has jumped 27% to 638p per therm, while the December contract has risen 26% to 720p per therm. Both are near last month’s record highs.

The day-ahead wholesale UK gas price has more than doubled this morning, as prices surged back towards this year’s record highs.

Gas for delivery tomorrow has surged by 140% to 360p per therm, after Russia’s decision to shut the Nord Stream 1 pipeline intensified the energy crisis facing Europe.

That more than wipes out Friday’s dramatic falls, when the markets were hopeful that Nord Stream 1 would resume operations on Saturday morning, as expected.

This contract closed at a record settlement price of 570p in mid-August, and briefly hit 670p back in March.

Two years ago, next-day gas cost around 30p per therm, before rising demand, energy shortages, and then the Ukraine war all drove up gas prices.

AJ Bell investment director Russ Mould, says:

“Predictably, wholesale gas prices are soaring, raising the prospect of even higher energy bills for businesses and consumers and sending the pound and the euro to new multi-year lows against the dollar.

“The US is in the enviable position of having relatively high levels of energy independence which insulate it from Putin’s proxy battle in the energy market as he looks to punish Europe for its support for Ukraine in the current conflict.

“This step was not entirely unexpected and everyone will be looking for answers to the current crisis, however it seems unlikely investments in new sources of energy will bear much fruit in the short term.”

More bad new. The UK economy shrank in August, in a sign that Britain’s economy could be falling into recession as energy prices spiral.

The composite Purchasing Managers’ Index (PMI), which covers UK service firms and factories, has fallen into contraction territory, due to a “severe and accelerated drop in UK manufacturing output” and a slowdown in the services sector.

The index, a gauge of activity, has dropped to 49.6, from 52.1 in July, and weaker than the ‘flash’ reading of 50.9 taken during August.

This is the first reading below 50 (showing a contraction) in 18 months, when firms were suffering from Covid-19 lockdowns.

The report found that demand for consumer-facing services such as restaurants, hotels, travel and other recreational activities is collapsing, as the cost of living crisis forces consumers to cut back.

Business confidence has slumped, with businesses reporting a drop in new orders – including the biggest drop in export demand since January 2021.

The report warns:

Elevated price pressures remain a worry for service sector companies, notably for energy, as does the prospect of higher interest rates and possible recession.

The report suggests Britain is slipping into recession, as soaring energy costs drive inflation into double-digit levels – highlighting the challenge facing the next prime minister.

S&P Global Market Intelligence’s Chris Williamson says there is an “increasingly broadbased malaise” across the economy:

“Jobs growth is already starting to weaken and, with hiring tending to lag changes in order books, the recent slump in demand alongside surging energy prices points to a growing reticence to employ staff in coming months.

“Although the survey data are currently consistent with the economy contracting at a modest quarterly rate of 0.1%, deteriorating trends in order books suggest the incoming prime minister will be dealing with an economy that is facing a heightened risk of recession, a deteriorating labour market and persistent elevated price pressures linked to the soaring cost of energy.”