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Morning Update

European Central Bank's forum, prices ease in shops for a second month, return scheme for single-use drinks containers, and concerns on supply side for gas futures rise.

ECB’s Forum on Central Banking  

Policy makers, financial market representatives and academics are convening in Sintra, Portugal today for the second day of the Forum on Central Banking. The event – organised by the ECB – aims to address current financial conditions as well as future policy over a longer-term perspective. According to some ECB insiders, another 25bps hike in July is a given while further monetary tightening may be needed to tame inflation. Some reports are also suggesting that policy markers are rejecting the market’s conviction that Frankfurt may be


inclined to ease rates in H1 of 2024, suggesting that rates may be elevated for longer-than-expected. The view that the ECB will continue to hike was supported by the ECB’s Gediminas Simkus yesterday who stated that a minimum of one more hike was required as did Martins Kazaks who indicated that he sees rates being hiked past June. As such, all eyes are on the second day of the conference today to gain an indication of Frankfurt’s potential policies moving forward.

Shop Price Inflation Eases

Prices at shops have eased for the second month in a row according to the British Retail Consortium’s Shop Price Index. The index slowed 60bps from last month’s print of 9% as it fell below the three-month moving average of 8.7%. This came as food price inflation also eased for the second consecutive month with the index coming in at 14.6%. This represented a significant drop from last month’s print of 15.4% as fresh food inflation eased significantly (from 17.2% to 15.7%).

Following the print, the BRC’s CEO Helen Dickenson welcomed the easing of inflation but stated that “along with a rise in business rates, and the introduction of border controls in October, these policies could hinder the Government’s efforts to combat inflation.” She continued by stating that “reforms to the packaging levy and a new deposit return scheme could create an additional £4 billion burden on retailers and their customers.”

According to the BRC, if the current situation continues, food price inflation should decline into single digits by the end of the year.

Bottle Deposit Return Scheme?

Earlier this month Scotland announced that they would delay the launch of Scotland’s Deposit Return Scheme until at least October 2025. This came after Westminster refused to allow glass to be included in the deposit scheme which would see consumers pay a 20p deposit on a single-use drinks container. This deposit would then be returned at return points which according to the plan “all retailers who sell, to consumers on their premises, in-scope drinks for take away must operate a return point”. Scotland’s Deposit Return Scheme campaign states that 70% of Scots want a DRS and that once operational it would save 160,000 tonnes of CO2eq each year. The campaign also suggests that £62million a year could be saved tackling the indirect impacts of litter with some 44,000 less bottles being littered each day.

Earlier this year the UK government approved a partial exemption to the Internal Market Act for the Scottish DRS but stated that glass bottles would be exempt. As such, the Scottish parliament have delayed the scheme until October 2025.

TTF Gas Futures Rise on Supply Side Concerns

Yesterday, TTF gas futures (the European benchmark) continued to rally as investors weighed on gas security across the continent after the Wagner Group’s rebellion sparked supply side fears over the weekend. While gas imports from Russia have been heavily reduced since the full-scale Russian invasion of Ukraine, the EU still imports around 25% of its gas from Russia. Hence with uncertainty gaining traction over the implications of the Wagner Group’s challenge to the Kremlin, gas prices on the continent rallies as much as 10% before easing again.




As we looked at last week, investors are weighing on the the impact that a potential closure of the Netherlands’ Groningen gas field would have on supplies throughout Europe, as reports of its possible closure at later this year. Nevertheless, TTF prices are down 75% down on the year  given that EU gas storage remains at around 76%, well above the average for this time of year as Brussels aims to ensure its target of 90% storage by the onset of winter.


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