Can’t afford the leccy?

UK electricity prices

 

According to the International Energy Agency (IEA), the UK has some of the highest electricity prices in the developed world.

It is not surprising that the cost-of-living crisis is an ongoing concern. This was sparked by the war in Ukraine which led to soaring energy prices that also fed into higher food prices. In June, PM Sir Keir Starmer was forced into a U-turn on winter fuel payments for pensioners. Energy bills are lower than their peak but remain high by historic standards.

Given this background, it is disturbing to read that energy regulator Ofgem believes the amount of money owed to energy suppliers by customers has increased to a new record high of £4.4bn. More than one million households in England, Wales and Scotland are thought to have no arrangement to repay their debt, with £1,716 owed on average.

Ofgem is now considering how to address the problem of those bills that have little chance of being paid. Its current proposal is to establish a fund called the Debt Relief Support Scheme.  This would allow energy suppliers to write off the customer debt that will never be paid. However, the cost of the Debt Relief Scheme is expected to have to be funded through everyone else’s bills!

The current ‘big six’ energy companies in the UK are – Octopus, British Gas, E.ON Next, OVO, EDF and ScottishPower. This year new Ofgem rules were introduced after a large number of smaller energy firms, who could not afford to hedge future supplies, went bust following the energy spike when Russia invaded Ukraine. Since 2018, over 60 energy firms have ceased trading and some major providers have decided to exit, and npower and Shell have both sold their operations.

The energy supplier side of the electricity sector is now showing signs of being financially stretched. OVO, has 4 million customers, has insisted it is ‘committed’ to meeting new financial resilience rules set by Ofgem after its accounts warned about ‘material uncertainty’ over its future following its failure to meet the new Ofgem targets. Earlier this year, Octopus Energy which supplies 7 million homes and is currently the largest supplier in the UK, revealed its own non-compliance with Ofgem’s new rules.

The UK’s leading energy suppliers have warned MPs at a select committee hearing that energy prices could climb by a further 20% over the next four years because of the rising cost of government policies, such as subsidising low-carbon power projects.

Given the current challenges, consumers deserve reliable and cost-effective suppliers. UK energy security is key to our futures.

What have we been watching?    

 Market movements continue to be dictated by the US-China trade relationship. Will there be a trade war or will both parties reach an amicable trade agreement? Markets also continue to fret about a possible AI ‘bubble’ as US equity valuations remain well above historic standards, the US government shutdown and renewed fears about the health of US regional banks.

On Friday concerns once again about the health of some American Non-Depository Financial Institutions (NDFIs) took centre stage. This followed news that two US regional banks Zions Bancorp and Western Alliance Bancorp had both been exposed to alleged fraud. This follows on from the recent First Brands and Tricolour Holdings collapses where a number of major investment banks have taken sizeable hits. Fears about contagion or a domino effect within the banking system caused a market sell-off albeit nerves were eased later in the day as three other US regional banks announced credit loss provisions that were smaller than analyst expectations. Jamie Dimon, head of JP Morgan warned that some more ‘cockroaches’ had crawled out in the US and clearly the real concern is how this might spread so investors will be watching US regional bank results like hawks.

Trump continues to blow hot and cold on a US-China trade deal! US Treasury Secretary Scott Bessent raised hopes that the 100% additional tariffs on China would not end up being implemented saying that a meeting between Presidents Trump and Xi Jinping later this month in South Korea, ‘is a go.’  However, there is no doubt that the Trump administration has been taken aback by what they consider China’s disproportionate move to restrict critical rare earth mineral supplies. China adopted a more conciliatory note last week, urging the US to ‘take steps towards co-operation.’  Initially, there was little sign of Trump backing down as he suggested the US was in a trade war with China and again signalled the 100% additional tariffs from the 1st of November. However, at the end of last week he once again appeared to soften his stance, and markets remain hopeful that a US-China trade deal will be agreed, or the tariff truce extended.      

While markets await the meeting of Trump and Xi Jinping a trade game of tit-for-tat appears underway. Last week China announced sanctions against five US-linked subsidiaries of South Korean shipbuilder Hanwha Ocean. This follows news that the US and China had implemented additional port fees targeting each other’s shipping. Trump announced plans to levy port fees on China linked ships earlier this year to ease the country’s grip on the global maritime industry.

Gold hit a record high amongst the trade uncertainty. It may also have received a boost from the IMF which warned that government debt across the world is on course to hit 100% of Global Domestic Product (GDP) by 2029 which would be the highest level since the aftermath of the Second World War!

 

The UK economy grew slightly in August, expanding by 0.1%. However, there were downward revisions to previous months with June and July lowered by 0.1%. Analysts expect the economy to remain sluggish in the run-up to the November Budget. The Institute for Fiscal Studies (IFS) is projecting Chancellor Rachel Reeves will need to find £22bn to make up a shortfall in government finances and will ‘almost certainly have to raise taxes.’ Weaker economic growth and a softening labour market are the reason that analysts expect the Bank of England to resume its interest rate cutting cycle in the first quarter of 2026. An interest rate cut of 0.25% is now expected in February as opposed to April.

 

In Europe, markets remained focused upon the no-confidence votes in PM Sébastien Lecornu’s government.

 

In the US, betting sites currently show a 45% chance of the government shutdown lasting beyond November 16th, after a federal judge ordered the Trump administration to pause plans to fire federal workers during the shutdown. The current shutdown is already the third longest and compares with the most recent 35-day shutdown in 2018-19.

 

In China, economic growth in the third quarter of 2025 slowed to 4.8% although this was slightly above market expectations, given the US tariff uncertainty.

Read our latest investment insights from Alpha PM

 

Brent oil dropped to under $61 as the IEA increased its global oil supply forecasts but trimmed the demand outlook. Meanwhile, Trump suggested that India would halt purchases of Russian oil.

Finally, an example of why France needs economic reform. Even the Eiffel Tower is struggling to pay for itself. While ticket prices have risen by 18% to over €36 it still lost €8.5m last year and is forecast to have a deficit of €31m by 2031. The cost of renovating the structure is very high, but its 441 public sector employees enjoy numerous perks including a bonus for staying at home on bank holidays! Parisians are questioning how one of the world’s most visited tourist attractions can be losing money!

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