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Surging oil and gas prices, as Central Banks due to meet

Date: 7th March 2022

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest economic developments:
  • Oil and gas prices have surged since Russia’s invasion of Ukraine (24 February). Brent crude oil futures rose to $118pb on 4 March, compared with $99pb on 24 February, whilst natural gas prices rose to a record 460 pence per therm on 4 March.
  • The MPC is expected to increase the Bank Rate by 0.25% to 0.75% at its March meeting (announcement 17 March), with more rises to come.
  • The Fed is also expected to increase its key Fed Funds rate by 0.25% at its March meeting (announcement 16 March), with more rises to come. New forecasts are expected to revise up the inflation forecasts. US CPI inflation accelerated to 7.5% in January, the highest since 1982.
  • The ECB is expected to maintain a dovish stance at its March meeting (announcement 10 March), with any rate rises postponed until next year. New forecasts are also expected to revise up the inflation forecasts. Eurozone CPI inflation picked up to 5.8% in February, from 5.1% in January.
Concerning UK data:
  • Interest payments on central government debt were £6.1bn in January 2021 (the highest January since records began in April 1997) compared with £1.6bn in January 2021.
  • Public sector net borrowing (PSNB) for the first 10 months of FY2021 totalled £138.5bn, compared with £278.7bn in the equivalent period in FY2020, but it was still the second-highest financial year-to-January borrowing since monthly records began in 1993. The OBR’s forecast for the PSNB in the first 10 months of FY2021 was £156.2bn, some more £17.7bn than the estimated outturn of £138.5bn.
  • Public sector net debt (PSND ex) at end-January 2022 was £2,317.6bn or around 94.9% of gross domestic product (GDP), maintaining a level not seen since the early 1960s.
  • According to the Bank, approvals for house purchases rose to 74,000 in January, after December’s 71,200. They were above the 12-month average up to February 2020 of 66,700 and the highest since July 2021.
  • Individuals borrowed £5.9bn of mortgage debt (net) in January, after December’s £4.0bn. This was above the pre-pandemic average of £4.3bn in the 12 months up to February 2020 and the highest since September 2021.
  • Individuals borrowed an additional £0.6bn of consumer credit in January, after £0.8bn in December.
  • According to the Markit surveys for February, services and construction picked up strongly, whilst the manufacturing PMI firmed a tad. Inflationary pressures generally remained a concern.
Ruth Lea said “…within the next fortnight the monetary policy setting operations of three key Central Banks are due to meet. Uppermost in the minds of the policy-setters will be implications of the economic and financial fallout of Russia’s decision to invade Ukraine on 24 February 2022, not least of all relating to the significant rise in energy and other commodity prices which can only intensify inflationary pressures. The MPC and the Fed are both expected to increase their key rates by 0.25%, with more rate rises expected in 2022. The ECB looks the outlier, with few expectations of any rate increases in 2022.”

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Press enquiries:

Arbuthnot Banking Group PLC: 

Ruth Lea, Economic Adviser 
07800 608 674, 020 8346 3482 
Follow Ruth on Twitter @RuthLeaEcon

Sam Cartwright 
020 7379 4415