Households in the UK and across Europe are getting squeezed by higher electricity bills, with Russia shrinking the flow of gas that helps generate much of the countries’ power. And the price increases are only expected to get worse.
The chart shows how hard the region has already been hit – with the UK (red line) seeing a 50% rise in electricity costs, compared to last year, and Europe (purple) seeing a 30% rise. Those are far steeper increases than consumers are seeing in Japan (blue) or the US (green). And, to make things worse, Russia recently announced another three-day “maintenance” shutdown of the crucial Nord Stream pipeline.
None of this bodes well for consumers in the UK and Europe who are already contending with lower real wages (with their incomes not keeping pace with overall inflation). More worrying still is the fact that the current increase in electricity prices doesn’t reflect the full extent of what’s to come: households are protected right now by price caps, and those are about to move higher. Meanwhile, industries in Europe and the UK are also in distress, since they’re exposed to “spot”, or market, electricity prices and have seen their profitability take a drastic hit.
For the UK and countries across Europe, the predicament is the same: lower real disposable incomes, higher costs for industries, and the risks of production cutbacks all point toward slower economic growth and stronger inflationary pressures. All this lends further pressure on the UK pound and the euro, which is already at a 20-year low. And while Europe might not look like the best place to invest, you can find other ways to protect your portfolio here.
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