Good Morning 


Boris Johnson admitted that his proposed tax rises to fund health and social care were breaking a manifesto pledge, when he delivered the news to the Commons yesterday, but he didn’t face anywhere near the rebellion from within his own party as many would have expected. The tax rise is predominantly a 1.25% increase in National Insurance, but in a marginal gimme to some dissenters it will also apply to dividend income and also to workers of a pensionable age. When asked by MP Margaret Hodge why he didn’t consider ‘fairer’ taxes such as raising income tax, or making CGT or dividend taxes equivalent to income tax the PM said that it just wouldn’t raise the money required (when asked by another MP why he needed the money in the first place when his red bus said the NHS would get £350m a week, he didn’t have much of an answer!). MP’s will now vote on whether to accept the proposals – but in a pretty shrewd move, the government has delivered the tax as being all about the NHS and they’ve also made the vote quite vague, which gives them the upper hand, as nobody wants to be seen voting against the NHS and dissenters will be unable to unite around a single issue. Another concern to be mindful f is just how much money the NHS will need in the coming months and years and the risk that this might leave little to fix social care. If that is the case the government might not be able to say that it broke one manifesto pledge in order to fix another.

UK Energy Prices
There’s another challenge being added to British business at the moment, in the form of energy prices. Prices in the last few days have hit record highs as the wind hasn’t been blowing because of the high pressure and the cost of gas has gone through the roof and is now trading at four times the price it was this time last year. Wholesale electricity prices are now at around £240 per megawatt hour, compared to less than £100 in early August. The increase has an immediate impact on businesses, whereas it will take time for consumers to feel the pinch, with prices being averaged out over six months f household bills. Energy companies will be feeling the burn though as the consumer price cap on energy costs means that many will be running at a loss. Yesterday it was announced two smaller energy providers had gone under as a result of this and in a bit of a knock to the green agenda the UK has had to switch on a couple of coal fired power stations, something that wouldn’t normally happen at this time of year. Still, it might not all be bad news, as higher prices and potentially greater profits mean more interest in the space and more capital inflows, with those funds likely to be directed at storage and flexible generation.

​​​​​Aluminium prices are hitting ten year highs as the coup in Guinea is putting the supply of bauxite under threat. Prices hit a ten year high in trading yesterday, which in turn has pushed up the share prices of some of the largest producers of the metal up also. Guinea is the second largest source of bauxite in the world and is China’s largest supplier, so whilst uncertainty remains the market is expecting China to ramp up purchases of whatever it can get its hands on to ensure it can keep up with their manufacturing demand. The disruption in Guinea might play into Rio Tinto’s hands, as they have more bauxite being produced in other parts of the world than they have offtake agreements for it and may find that they’re able to leverage the fact to lock in some supply agreements that may be more expensive to the buyer but equally more stable.


El Salvador’s first day of using Bitcoin as legal tender went horribly wrong yesterday and the government had to suspend the plan. The country had developed their own digital wallet to allow bitcoin transactions, but the demand for registrations forced the technology to crash. This in turn moved bitcoin lower by nearly 20%, which is a bad day for bitcoin investors, but also a red flag for El Salvador’s government, who had planned to guarantee the price of the coin to ensure that businesses in the country using the cryptocurrency weren’t disadvantaged by price movements – this basically means the taxpayer was underwriting a massive bet on the price of bitcoin, which many citizens won’t have been aware of. We’re not sure what the next move is for the government and whether they try again, but their bold move should still be seen as a sign that disruption is on the way, however much governments with more stable currencies and banking infrastructure might not like to think so (but we still don’t think it will be Bitcoin that takes over).

In more traditional news: US Democrat senator Joe Manchin has said that he’s not willing to go any higher than $1.5 trillion when it comes to Joe Biden’s proposed $3.5 trillion budget plan. His dissent from the party line puts the knife edge vote at risk of not passing and means that Biden is likely to have to make some concessions in the budget to get him onside – which in turn risks others piping up to get their amendments in. Democrats are targeting the middle of next week to have the legislation finalised before putting it to a vote. Joe Biden meanwhile has asked for $24bn from congress to address natural disasters, split as $10bn for hurricane Ida damage and $14bn to clear up disasters that have gone before the hurricane

Buffett Indicator & GDP
There’s a story doing the rounds about stock market valuations and how they’re massively overpriced on the “Buffett indicator”. The indicator, named after Warren buffet, is a relatively simple bit of maths that divides the total market cap of global equities by total global GDP and the outcome of that equation is that the indicator is at 142%, an all-time high, and is therefore flashing a warning that things are overpriced and could be in for a correction. There is of course the precursor that the world is in a very strange place at the moment and the money in markets has been artificially created by central banks, which in turn might make its way back out of markets further down the line (though the jury is out on that). Looking Ahead
Judging by the queues in Pret for coffee this morning, London is definitely back in the office. As such we’ll hope for liquid markets and people looking to get going for the autumn term.

Have a great day


* indicates required


Sign up to get our insights directly to your inbox

Sign up