Notes From Post-Brexit Britain
People fighting on petrol station forecourts, taking fuel away from pumps in any sort of container they can get their hands on, petrol stations around the country running empty, speculation that the army will be brought in to manage the situation. Nope, this isn’t a new Bruce Willis action movie, just another day in post-Brexit Britain. The escalating fuel shortage in the UK has rocketed into the limelight over the last week with price around the country soaring, distributors and suppliers going bust and now fears the military will need to be mobilised. If you’re confused as to how the crisis started, why it’s become so bad, and how it’s impacting the economy, read on.
What Caused the UK Energy Crisis?
Sadly for UK consumers, the economy is now being hit by a perfect storm of Brexit related difficulties and COVID related difficulties. The change in regulations as a result of the UK leaving the single customs union have added a frustrating layer of complexity and expense to operations between the two economies. Over recent months, distributors have been struggling to maintain normal service whilst also dealing with the complexity and expense of COVID healthy and safety procedures as well as the disruption caused by the pandemic (drivers off ill, isolating etc). These two factors combined have created a massive lorry-driver shortage between the UK and Europe, amplified by the number of foreign lorry drivers in the UK who returned home as a result of Brexit.
Why Has the Situation Become So bad?
The lorry driver shortage has been a big factor all year with a range of vendors from supermarkets through to clothing retailers and restaurants all struggling with maintaining supply chains. However, the issue spilled over into the fuel market (pardon the pun) as a result of a recent announcement from BP. The mammoth oil company announced a series of closures at some of its stations due to supply issues. Additionally, energy price at all time highs and the collapse of a wave of smaller providers and distributors has added to the sense of woe. Ultimately though, the situation was essentially then inflated and exaggerated by the press, sparking panic in the public which has reacted in typical fashion by unleashing a wave of panic buying which has dramatically exacerbated the situation.
What Happens Next and How Will It Impact The Economy?
Having been backed into a corner, the UK PM has been forced to take several actions, including:
- Offering temporary work visas to foreign drivers to by pass all the red tape creating the bottleneck.
- Waving competition rules among fuel providers to allow them to share information to help get supplies to the petrol stations being emptied by panic buying
- Finally, recent reports have suggested that Johnson is considering bringing in the army to drive fuel tankers and distribute fuel around the country. While this has so far been denied by the government, there tends to be no smoke without fire around these “leaks”.
So, in terms of what this all means for the economy. The obvious answer is: nothing good! The situation is the culmination of the driver shortages which have been building all year and look set to worsen heading into the winter months and the projected fourth wave of COVID takes its toll on the UK. Furthermore, the spike in energy prices is driving inflation even higher, squeezing the UK consumer at a time when they are only just starting to recover from the pandemic.
This puts the BOE in a very tight spot as a lift in interest rates to help curb prices would also increase the debt obligation of the public. With this in mind, the situation is very precarious and certainly worth monitoring. The current weakness in GBP and UK assets is a clear sign of the investor uncertainty towards the UK right now.
Technical Views
GBPUSD
GBPUSD is now threatening a downside break with price testing below the contracting triangle pattern which has framed recent price action. Below here, 1.3570 is the main support to note, a break of which would pave the way for a much deeper move lower, supported by bearish indicator readings.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.