Reeves to meet North Sea oil bosses amid inflation ‘uncertainty’
Chancellor Rachel Reeves has revealed she will meet North Sea oil and gas bosses on Wednesday in London, with a market price surge putting the UK economy’s path towards lower inflation in jeopardy.
Reeves told MPs during her Spring Statement that she would meet energy bosses from companies operating off Scotland as the government looks to “manage this uncertain period”.
The impromptu meeting with industry bosses comes as gas prices surged due to a Qatari state company’s closure of its liquified natural gas production after being targeted by an Iranian drone attack.
Oil prices have also risen, with the Brent Crude Oil spot price at around $82 compared to $73 just days ago.
Another energy price shock would deal a blow to Labour given Reeves’ hopes of talking up “stability” and higher investment in the UK economy.
The Office for Budget Responsibility (OBR)’s David Miles warned that there was “more uncertainty” on new predictions around inflation despite forecasts suggesting price growth would ease at a faster pace than previously expected this year.
The Resolution Foundation’s chief executive, Ruth Curtice, said the OBR’s new forecasts “already look out of date”.
Schroders global economist David Rees said the Bank of England would “pause for thought” on an interest rate cut later this month despite investors pricing in a reduction in borrowing costs before the conflict erupted.
How Reeves will calculate risk to inflation
Treasury officials and OBR analysts use a “rule of thumb” for how market prices may impact inflation and growth.
Former Chancellor Jeremy Hunt said on LBC that the Treasury calculated a 20 per cent rise in oil and gas prices to equate to a single percentage point increase in inflation and a 0.5 percentage point hit to growth.
The government has also faced intense criticism over its energy policy and commitment to making the national grid almost carbon-free by 2030.
Economists at Peel Hunt, Panmure Liberum and a number of other City firms have called on Reeves to lower the energy profits levy and strip red tape preventing firms from expanding exploration in the North Sea.
WPI Strategy’s Martin Beck agreed: “A credible strategy to bolster domestic energy security, including encouraging, rather than curtailing, North Sea production, would help shield the public finances and the UK’s balance of payments from the volatility of global markets.”
Energy companies face a 78 per cent headline tax rate on profits as a result of government policies, fuelling criticism from opposition parties including the Tories, which have committed to scrapping a Theresa May-era policy to get to net zero by 2050.
President Donald Trump has also hit out at the UK government over its energy policies, decrying the country’s industrial electricity costs, which are more than 80 per cent higher than that paid in France.