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It’s that time of year again.
There are many different companies who see their annual profits hit the headlines, to various shrieks of foul play – banks and the oil giants being the most obvious ones. But there’s one company which encourages more outrage than all of these put together.
That’s right – British Gas owner Centrica (CNA) delivered its annual results yesterday. And the cheeky blighters only went and made some money…
British Gas put up its prices by 15% last month. So it’s frankly not the best time for its owner Centrica to come out and reveal a 40% jump in operating profits for 2007, to £1.95bn. And it was made worse by the fact that British Gas was the main driver of the profit rise, with profits at the unit leaping to £571m from £95m in 2006.
Wholesale gas prices fell during the first two-thirds or so of the year, which is when British Gas made the lion’s share of its profits. Wholesale prices then started to tick higher towards the end of the year; the unit’s profits were just £38m in the second half.
The group was accused by consumer groups of not cutting prices for consumers quickly enough at the start of the year, but the rapid change in fortunes in the second half shows the speed at which conditions change in the industry.
Now I’m not saying for a moment that there aren’t problems with British Gas. Complaints about the company regularly fill the consumer pages of newspapers, usually in connection with billing errors (although to be fair, this is partly because British Gas is still the UK’s biggest gas supplier, so it’s likely to generate a larger proportion of complaints).
I can sympathise, having once spent nearly a year trying to convince the company that it was no longer the gas supplier at a property I’d once occupied in Glasgow. What made it worse was the fact that I didn’t even live in the property anymore.
Energy prices will rise, regardless of your supplier
So the company’s customer service systems could do with work. But at the same time, there are plenty of good reasons for gas prices to have shot up this far. Gas prices are linked on the continent to oil prices – and oil is at more than $100 a barrel right now. And the high price of coal has made it more expensive to generate electricity from coal-fired power plants.
But we’ll soon find out if there is anything more sinister going on. Just as Centrica was being pilloried for making money, energy regulator Ofgem conveniently announced that it’s launching an investigation into gas and electricity suppliers, after five of the big six imposed double-digit price increases last month. So we should find out what the regulator’s initial views are in September.
The trouble is, as Centrica says, there have been 15 enquiries into the UK energy market in the past seven years and each “has given the industry a clean bill of health.” I suspect that this probe will too. The chief executive of Ofgem, Alistair Buchanan has already said that “to date, we have no clear evidence that the market is failing.”
In the meantime, regardless of who you’re with, it’s worth checking if you could get your energy cheaper from a different supplier, using a comparison website such as SimplySwitch or uSwitch. But unfortunately, with the price of coal and oil not showing any signs of falling back soon, and demand for higher investment in expensive alternative technologies like wind farms, consumers can expect prices to keep rising in the near future – regardless of what Ofgem uncovers.
That’ll leave consumers more overstretched than ever – which is more bad news for the UK economy. Meanwhile, over in the US, another piece of data suggested the country is already in recession. The Philadelphia Fed showed that manufacturing activity in the region is at its weakest in seven years. As Paul Ashworth of Capital Economics put it: “As far as this indicator is concerned, a recession, and a severe one at that, is already under way.” Another measure, the Conference Board’s leading indicators index, is also pointing to a recession.
I can’t say I’m surprised. The US has been heading for recession since the housing bubble popped. It’s just astounding that anyone could ever have imagined that the collapse wouldn’t have an impact on the wider economy. The dotcom bubble resulted in a recession – yet ultimately that affected a much smaller number of consumers. Nearly 70% of people living in the US own a home. Sure, one argument goes that the dotcom bubble hurt companies more – but this housing collapse is absolutely crippling the banks, who are effectively the heart of any economy.
There will still be those who argue over the semantics and say it’s not a recession because we haven’t seen two quarters of ‘negative growth’ or whatever. But as Neale Goldston-Morris of Macquarie Equities tells Reuters: “Whether the US is in recession or not, I’ll leave to the economists, but we are going to have an extended downturn simply because the US debt market is in such a difficult state.”
Admittedly, it doesn’t take a rocket scientist to work that out – but it does seem a bit of a stretch for your average economist.
Turning to the wider markets…
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Bearish economic data dents gains
London’s FTSE 100 index closed 38 points higher, at 5,932, yesterday, but gathering gloom on Wall Street saw the blue-chips fall back from an intra-day high of 6,000. Journals publisher Reed Elsevier was the day’s best-performing blue-chip as the market welcomed restructuring plans. For a full market report, see: London market close.
Elsewhere in
On Wall Street, fresh regional manufacturing data reminding investors of the slowing
Asian markets took their lead from the US and slid into the red today. The Japaense Nikkei was 187 points lower, at 13,500. And in Hong Kong, the Hang Seng was down 317 points, at 22,305.
Lloyds posts 10% profit
Crude oil futures had extended yesterday’s falls this morning by a further 45 cents to $97.78. In
Spot gold rallied to a record high of $953.60 yesterday, but the falling oil price saw it slip back to $943.00 this morning. Silver was still hovering near yesterday’s 27-year high, last trading at $17.87. And platinum was at $2,155, below an earlier all-time high of $2,192.
Turning to forex, the pound had strengthened against both the euro and the dollar this morning, last trading at 1.9674 and 1.3251 respectively. And the dollar was at 0.6734 against the euro and 107.03 against the Japanese yen.
And in
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