Invasion of Ukraine threatens to further drive up energy bills Business

Fears over energy supplies sparked a warning from a senior Bank of England official that interest rates may need to rise faster.

In his first monetary policy speech since the Bank raised interest rates from 0.25% to 0.5% earlier this month, Deputy Governor Sir Dave Ramsden said: “We don’t hadn’t anticipated the recent rise in energy prices, and as we encounter today the Ukraine crisis intensifies.

“Because of the uncertainty, it is particularly difficult to make predictions about the direction that monetary policy might take in the medium term. In the short term, further tightening seems necessary to prevent the current high inflation from taking hold.

Germany had been reluctant to shut down Nord Stream 2 because it is increasingly dependent on energy imports. However, Chancellor Olaf Scholz said Russia’s actions constituted a “serious breach of international law”.

His action drew an angry reaction from Moscow. Dmitry Medvedev, the former president and current deputy chairman of the Russian Security Council, claimed that this could more than double gas prices.

He tweeted: “Welcome to the brave new world where Europeans will very soon be paying €2,000 for 1,000 cubic meters of natural gas!”

Analysts were less sure of the impact, but also expected higher energy prices. Nathan Piper, head of oil and gas research at Investec, said: “We’ve almost made it through winter, we’ve had a mild winter in terms of temperatures. So gasoline prices will, relatively speaking, begin to moderate. But I think any risk of delivering gas from Russia will drive prices up. »

He added that a sustained price above 128p per therm would indicate a further rise in the energy price cap in October. Gas trades at around 190p per therm.

Analysts at S&P Global Platts said the shutdown of Nord Stream 2 will drive prices higher over the next two years, “with knock-on effects across the entire commodity complex, including power, coal and oil”.

Neil Shearing of Capital Economics said: “We estimate oil prices could hit $120-$140 a barrel in the worst-case scenario.”

Bank of America analysts were already expecting a boom in air travel this summer to push the price of oil to $120 a barrel. Depending on the severity of the conflict in Ukraine, they are planning a further increase in addition to the one between 5 and 20 dollars.

Wheat prices climbed 2.9% as traders feared a disruption in Ukrainian exports. Other commodity movements include aluminum, up 0.5pc, and nickel, up 0.85pc, both coming in large quantities from Russia.

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This notice was published: 2022-02-22 20:03:35

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