UK Aid for Energy Bills Could Pay for Itself, Deutsche Bank Says

Article content(Bloomberg) — Properly designed UK support to cut household energy bills could help reduce both inflation and government debt service costs, potentially resulting in an aid package that pays for itself, Deutsche Bank said. Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentExpenditure of around £4 billion ($5.3 billion) to offset the price shock caused by the US-Israeli war on Iran could bring the consumer price index down by 0.4 percentage points, Sanjay Raja, the bank’s chief UK economist, wrote in a note on Friday. That would be the projected result of extending a freeze in fuel duty until the end of the fiscal year next March as well as trimming government-mandated charges embedded in a typical household’s energy bill for nine months, he said.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article contentArticle content“Energy support designed to reduce household bills could ultimately be self-financing,” Raja wrote. “Fiscal support that would actively reduce CPI inflation could end up paying for itself – even adding to the fiscal headroom.”Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentChancellor of the Exchequer Rachel Reeves is coming under increasing pressure to set out how she plans to shelter ordinary Britons from surging energy prices resulting from the conflict in the Middle East. Earlier this week, she said the government is planning to target any support it rolls out at the neediest. Article contentRaja said conventional thinking means the case for targeted support is “strong” because “every pound of aid will have a greater positive impact on low-income households.” But he said financial markets had “created a contradictory incentive for broad-based support” because of the effect that would likely have in reducing inflation.Article contentIn the Deutsche Bank scenario, lower CPI resulting from broad-based energy support would ease pressure on the Bank of England to raise its base rate, and lead rates down across the yield curve, Raja wrote. That would cut net government borrowing by an estimated £3.6 billion by the end of the 2030-2031 fiscal year by saving debt service costs, he said. Factoring in a boost to growth resulting from the lower rates and inflation could see the reduction in borrowing climb further to nearly £5 billion, he added.Article contentFor now, ministers have said most households are protected until the end of June by the country’s quarterly system of energy price caps, which means the unit cost of gas and power bills will actually decrease next month and stay there for three months. Meanwhile fuel duty levied on motoring fuel remains frozen until September, although the total cost of fuel at the pump this week rose above 150 pence per liter for the first time since the Iran crisis began, according to data from the RAC motoring services company.Article content—With assistance from Joe Mayes.Article contentTrending Posthaste: Believe it or not but home prices rose in these 11 major Canadian cities News Why waiting to lock in your variable rate often backfires Mortgages Markets could be making the wrong call on interest rates Investor Rubio spars with G7 diplomats over wars in Iran and Ukraine News ‘Mispriced’ Warner Bros. deal spread creates windfall potential Retail & Marketing Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information. Posthaste: Believe it or not but home prices rose in these 11 major Canadian cities News Why waiting to lock in your variable rate often backfires Mortgages Markets could be making the wrong call on interest rates Investor Rubio spars with G7 diplomats over wars in Iran and Ukraine News ‘Mispriced’ Warner Bros. deal spread creates windfall potential Retail & Marketing