- U.K Economy Sees ‘Notable Slowdown’ in First Half of 2017
The U.K.’s lackluster growth is doing little to support the Bank of England’s hawks.
The expansion picked up only modestly to 0.3 percent last quarter, compounding what the Office for National Statistics called a “notable slowdown in the first half.” It suggests the economy’s resilience since the Brexit vote has weakened and it leaves the BOE’s divided policy makers with scant further evidence to justify a interest-rate increase next week.
While services were the sole positive contributor to gross domestic product, the sector was mainly driven by retail and the film industry. Movie releases such as Wonder Woman and the production of the sequel to Jurassic World at Pinewood Studios bolstered services in the first half.
Production and construction dragged on the economy, and agriculture had zero impact, the ONS said. At the same time, households are under pressure from rising prices and weak wage growth.
U.K. Chancellor of the Exchequer Philip Hammond said the slowdown was partly due to uncertainty following last year’s vote to leave the European Union. Some firms may be delaying investment because of Brexit, he said.
“GDP was held up by a bounce in retail growth that won’t last,” said Rob Wood, chief U.K. economist at Merrill Lynch in London. “Over the past few weeks, there’s been a notable slowdown in the economy and that’s a bit worse than the more hawkish members would like. It points pretty strongly for keeping rates on hold.”
The data is the latest to undermine arguments for the immediate rate hike that a minority of policy makers supported at the last BOE decision. Inflation abated to 2.6 percent in June and retailers saw a summer boost from good weather.
Economists see the BOE holding its key rate at its record-low 0.25 percent level until mid-2019, according to a Bloomberg survey. Investors place odds of less than 40 percent on a rate increase this year, down from 45 percent a month ago.
The report is the last major data point before the central bank announces its next policy decision and publishes new forecasts on Aug. 3. Officials on the Monetary Policy Committee voted 5-3 to keep rates on hold last month and have been drawing the battle lines in recent weeks over whether to stifle inflation that has surged above their 2 percent target.
“Ultimately, the data will decide what action the MPC will take and when,” said Alan Clarke, an economist at Scotiabank in London. “The MPC will leave bank rate on hold.”
Egbin Decries N388B NBET Debt, Idle Capacity
Egbin Power Plc, the biggest power station in Nigeria, has said it is owed N388bn by the Nigerian Bulk Electricity Trading Plc for electricity generated and fed into the national grid.
The company disclosed this on Tuesday during an oversight visit by the Senate Committee on Privatisation, led by its Chairman, Senator Theodore Orji, to the power station, located in Ikorodu, Lagos.
The government-owned NBET buys electricity in bulk from generation companies through Power Purchase Agreements and sells it to the distribution companies, which then supply it to the consumers.
The Group Managing Director, Sahara Power Group, Mr. Kola Adesina, told the lawmakers that the total amount owed to Egbin by NBET included money for actual energy wheeled out, interest for late payments and available capacity payments.
Egbin is one of the operating entities of Sahara Power Group, which is an affiliate of Sahara Group. The plant has an installed capacity of 1,320MW consisting of six turbines of 220 megawatts each.
The company said from 2020 till date, the plant had been unable to utilize 175MW of its available capacity due to gas and transmission constraints.
Adesina said, “At the time when we took over this asset, we were generating averagely 400MW of electricity; today, we are averaging about 800MW. At a point in time, we went as high as 1,100MW. Invariably, this is an asset of strategic importance to Nigeria.
“The plant needs to be nurtured and maintained. If you don’t give this plant gas, there won’t be electricity. Gas is not within our control.
“Our availability is limited to the regularity of gas that we receive. The more irregular the gas supply, the less likely there will be electricity.”
He noted that if the power generated at the station was not evacuated by the Transmission Company of Nigeria, it would be useless.
Adesina said, “Unfortunately, as of today, technology has not allowed the power of this size to be stored; so, we can’t keep it anywhere.
“So, invariably, we will have to switch off the plant, and when we switch off the plant, we have to pay our workers irrespective of whether there is gas or transmission.
“Sadly, the plant is aging. So, this plant requires more nurturing and maintenance for it to remain readily available for Nigerians.
“Now, where you have exchange rate move from N157/$1 during acquisition in 2013 to N502-N505/$1 in 2021, and the revenue profile is not in any way commensurate to that significant change, then we have a very serious problem.”
He said at the meeting of the Association of Power Generation Companies on Monday, members raised concern about the debts owed to them.
He added, “All the owners were there, and the concern that was expressed was that this money that is being owed, when are we going to get paid?
“The longer it takes us to be paid, the more detrimental to the health and wellbeing our machines and more importantly, to our staff.”
Adesina lamented that the country’s power generation had been hovering around 4,000MW in recent years.
Oil Rises on U.S. Fuel Drawdowns Despite Surging Coronavirus Cases
Oil prices climbed on Wednesday after industry data showed U.S. crude and product inventories fell more sharply than expected last week, reinforcing expectations that demand will outstrip supply growth even amid a surge in Covid-19 cases.
U.S. West Texas Intermediate (WTI) crude futures rose 48 cents, or 0.7%, to $72.13 a barrel, reversing Tuesday’s 0.4% decline.
Brent crude futures rose 34 cents, or 0.5%, to $74.82 a barrel, after shedding 2 cents on Tuesday in the first decline in six days.
Data from the American Petroleum Institute industry group showed U.S. crude stocks fell by 4.7 million barrels for the week ended July 23, gasoline inventories dropped by 6.2 million barrels and distillate stocks were down 1.9 million barrels, according to two market sources, who spoke on condition of anonymity.
That compared with analysts’ expectations for a 2.9 million fall in crude stocks, following a surprise rise in crude inventories the previous week in what was the first increase since May.
Traders are awaiting data from the U.S. Energy Information Administration (EIA) on Wednesday to confirm the drop in stocks.
“Most energy traders were unfazed by last week’s build, so expectations should be high for the EIA crude oil inventory data to confirm inventories resumed their declining trend,” OANDA analyst Edward Moya said in a research note.
On gasoline stocks, analysts had expected a 900,000 barrel decline drop in the week to July 23.
“The U.S. is still in peak driving season and everyone is trying to make the most of this summer,” Moya said.
Fuel demand expectations are undented by soaring cases of the highly infectious delta variant of the coronavirus in the United States, where the seven-day average for new cases has risen to 57,126. That is about a quarter of the pandemic peak.
Oil Price Rises To $74.70 Despite Delta Variant
Oil price inched higher on Tuesday despite the fast spreading COVID-19 Delta variant. Brent crude oil, against which Nigerian oil is priced gained, $0.20 or 0.27 percent to $74.70 per barrel on Tuesday at 12:05 am Nigerian time.
Delta variant is spreading in China, the world’s largest importer of crude oil, forcing crude oil investors to start cutting down on their oil demand projections.
“The Delta variant is still spreading and China has started to clamp down on teapots, so their import growth would not be that much,” said Avtar Sandu, a senior commodities manager at Singapore’s Phillips Futures, referring to independent refiners.
Strong U.S. demand and expectations of tight supplies have helped crude oil to recover from a 7 percent slump recorded last Monday to mark their first gains in two to three weeks last week.
Global oil markets are expected to remain in deficit despite a decision by the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, to raise production through the rest of the year.
“There is seemingly a battle within the energy complex between the prevailing supply deficit engineered by OPEC+ and the threat of the COVID-19 Delta variant in regions with low vaccination rates,” said StoneX analyst Kevin Solomon.
“The slow take-up of vaccinations will continue to limit some upside in oil demand in those regions, and there will be intermittent spells in the recovery in the coming months.”
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