ENERGY COSTS TO SLOW WORLD ECONOMY
Forecasters warn that the rise in energy costs will constrain the stock market and slow the economic recovery.
Lehman Brothers has slashed its growth forecast for the American economy next year from 4% to 3.3% and is warning of knock-on effects elsewhere.
“We see it as the big downside risk,” said Mike Dicks, a Lehman economist. “And it is happening when business confidence is already low.”
Peter Luxton at Informa Global Markets agreed. “Global growth will hit increasing headwinds as oil prices act as a drag,” he said. “The recovery could be aborted and the ‘soft patch’ could turn soggy for a more prolonged period. The growth bulls face castration.”
Oil prices have risen by 50% in the past year in response to security worries in Iraq, supply fears in Russia and Venezuela and rising world demand.
Meanwhile, British industrialists are urging government action over rising gas and electricity prices, which are set to reach record levels this winter.
Leading manufacturers say they face increases in their gas and power bills of 30%-50%, and warn that the increases could lead to shutdowns and dissuade investment in plants.
A spokesman for Pilkington, the glassmaker, said its energy costs had risen by 30%-40%.
The Energy Intensive Users Group (EIUG), which represents glass, steel and paper makers, said companies that had paid 15p a therm for wholesale gas two years ago were being quoted more than 40p for this winter.
Some companies allege that gas shippers and traders are rigging the market to push up prices. Ofgem, the energy regulator, has passed the claims to the Financial Services Authority, which said yesterday that its investigation was continuing.
Ofgem’s own report on gas prices is expected to be published next month.
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