High inflation is creating economic disruption all over Europe, and governments could be forgiven for looking for solutions in unlikely places. It is well known that economist struggle to come up with solutions for controlling supply side inflationary forces, and with the war in Ukraine showing no signs of coming to an end, the problem hasn’t looked like going away.
But help it seems, has come not from the Treasury, or from Moscow, but from a more unexpected source – the weatherman. Across the UK and Europe, an unusually mild Winter has left gas supplies much higher than would be expected. Indeed, Europe has used only half the gas so far this Winter that it used over the same period in the last two years.
Put this together with other sources of power coming online, and we see a remarkable turnaround, albeit one that will not be reflected in our energy bills for while yet.
Back in August, when Russia put the squeeze on European gas supplies, the UK day-ahead gas contract traded at over 500p a therm. In early December, when we had a cold snap, it peaked again at 400p. But since then, it has fallen, and on 12th January 2023 traded at 158p. A remarkable turnaround!
The daily price is of course extremely volatile, and it will take a while for consumers to see any benefit, but come the middle of 2023, it looks as though we can expect to see lower average prices than many forecasters have been projecting.
That of course is good news for governments, whose support schemes look like costing them less money. Further savings could be made if they made greater efforts to prioritise those in most need rather than offering blanket support. And given that it is unseasonally hot weather that has come to the rescue, maybe channelling some of it into green initiatives would be a smart move!
Alan Nelson is an author for accountingcpd. To see his courses, click here.
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