Liz Truss may be winning her energy price cap bet after all

Gas Infrastructure Europe indicates that gas stocks have reached 98% in France, 94% in Germany and 92% in Italy. That’s enough to get by all winter as long as there’s no polar vortex.

The government has calculated the cost of the energy cap at around 600 pence per therm for December gas. The actual cost of December contracts is now 435p/therm.

The November contract fell to 294 p/therm – already at or below the guarantee. Predictions of an energy cap of £7,000 or more by next April have always been dubious – if not a publicity stunt – as they overlooked demand destruction across Asia.

Goldman Sachs thinks European wholesale prices could fall another 40% by the end of winter. Average energy bills in the UK would in this case fall to £2,000 or less.

The government could put its checkbook back in the drawer.

Douglas McWilliams of the Center of Economics and Business Research says public finances are in better shape than commonly believed.

The drift in the brackets largely offsets the fiscal effect of the tax cuts announced by Kwasi Kwarteng, the Chancellor. “There are two stealth mechanisms at work. They are giving the government £60billion to play with over two years,” McWilliams said.

One of them is the freezing of tax thresholds. The other is to keep public sector wage increases below inflation.

“If our calculations are correct, it would appear that the Chancellor has managed to burn his reputation for fiscal prudence for no good reason. He would have been better advised to have done his accounts before presenting his budget to the markets,” he says.

Rating agencies may have been trigger-happy in issuing warnings about the UK.

On Thursday, Fitch Ratings made tantalizing claims in a note that might only be plausible in a doomsday scenario, in which circumstances fiscal pressure would be just as bad in Europe. A growing number of states have comparable price caps.

Fitch has put the UK on negative watch, predicting that the budget deficit will reach 8.8% of GDP next year if there is no fiscal reversal. The gross debt ratio will rise from 101% to 109% of GDP by 2024 – according to its internal measure, different from other bodies.

This eight percentage point rise is science fiction as inflation reduces the underlying debt burden faster than it increases the cost of servicing the debt of indexed gilts.

Fitch says additional tax measures will cut revenue by £28bn this year and £31bn next year. This is an annual easing of around 1.2 pc of GDP, a level that would not normally lead to a gilt crisis.

Clearly, other factors are at work: stress across the global bond market and the ideological bent of an untested government. But the hard numbers aren’t that big.

Events in Ukraine will mainly determine gas prices and the fiscal costs of the recession. Clearly, anything can happen. But the balance of odds is that Putin will soon have to focus all his efforts on an internal power struggle at home.

Historian Timothy Snyder says Putin’s defeat on the battlefield triggers a ripple effect in Russia.

Faction warlords (Kadyrov, Prigozhin) and parts of the Russian army are already in run for your life mode, undermining each other and striving to preserve their strength for the political convulsions of the post-invasion era.

Putin’s own survival now depends on his ability to find a quick way out of his predicament before the entire Russian line collapses.

Even if the Nord Stream pipelines are damaged beyond repair, significant flows of Russian gas could resume in time for the winter of 2023-2024 via the Yamal route via Poland and the pipeline node via Ukraine. The EU would seize the opportunity if there was a change of music in the Kremlin.

We may be approaching the point where the futures market begins to price in the end of the global gas crisis.

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