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Gas price cut to cut PM Liz Truss bailout bill

Falling gas prices could cut the planned cost of an energy bailout drawn up by Prime Minister Liz Truss, according to City experts.

  • New forecasts from Goldman Sachs could wipe tens of billions from Treasury bill
  • The revised estimates are described as ‘more realistic’ than previous sky-high forecasts
  • Gas prices are likely to more than halve to £88 per megawatt-hour by next spring

Falling gas prices could cut the planned cost of an energy bailout drawn up by Prime Minister Liz Truss, according to City experts.

Dramatic new forecasts from investment bank Goldman Sachs could wipe tens of billions off the Treasury bill, he said.

The revised estimates have been described as ‘more realistic’ than previous sky-high forecasts and a ‘game-changer’ by a leading truss consultant.

New forecasts: Analysts have warned promises to freeze household bills and earlier estimates suggested the support deal would leave taxpayers on the hook for more than £150bn.

New forecasts: Analysts have warned promises to freeze household bills and earlier estimates suggested the support deal would leave taxpayers on the hook for more than £150bn.

Analysts have warned that promises to freeze household bills and support business will leave taxpayers on the hook for more than £150bn, earlier estimates suggested. That would add to the nation’s massive £2.4trillion debt pile and put more pressure on the Bank of England to raise rates to curb inflation.

A report by Goldman Sachs predicts gas prices – which have soared in the wake of Russia’s invasion of Ukraine – are likely to more than halve to €100 (£88) per megawatt-hour by next spring.

Goldman said efforts by European countries to ditch Russian gas to avoid major electricity shortages this winter by boosting their own supply are likely to prove effective.

Doug McWilliams, of the Center for Economic and Business Research, said the annual cost to taxpayers would be just £30bn by next year and ‘largely disappear’ by 2024/25, based on the bank’s estimates.

Gerard Lyons, chief financial strategist at online wealth manager NetWealth and a close friend of Truss, said: ‘Although it is difficult to be precise about the exact cost, it appears to be more realistic.’

He said gas prices had ‘fallen dramatically’ since the plan emerged, and critics offered their dire predictions about the cost to taxpayers. Lyons said: ‘Financial markets are ready to believe extreme projections based on astronomically high gas prices.

‘It has [since] It is clear that European countries, including the UK, are taking action to address their energy supply needs.

More details are expected in what has been described as a ‘mini-budget’ to be unveiled by the government on Friday. A Whitehall source said government officials were encouraged by the Goldman Sachs analysis. The price of gas is volatile, especially after the invasion of Ukraine. According to the Office for National Statistics, it fell by almost a third in the week to September 11. That’s more than double a year ago.

The Bank of England is preparing to announce on Thursday that it expects a record rise in interest rates, currently at 1.75 percent. Financial markets are predicting a 0.75 percentage-point rate hike to 2.5 percent.

At that level, someone with a 25-year, £200,000 tracker mortgage would pay an extra £81.42 a month, says Moneyfacts.co.uk.

That would eat up the average £1,000 annual savings from the government’s fuel price freeze. The cap lowered expectations of how high UK inflation would go. Goldman Sachs, which had forecast a peak of 22 percent, now expects the current rate of 9.9 percent to fall to 5.8 percent next year. That’s still above the Bank of England’s 2 percent target. Financial markets now expect the cost of borrowing to remain high.

Ministers recently gave firms a six-month grace period to reduce energy bills, but critics say the package lacks details.

Trade body UK Hospitality told the MoS that a third of its members have a month’s cash reserves or less – and are struggling to meet expenses. And while 24 percent are running at a loss, nearly three-quarters of consumers have seen a decline in eating and drinking.

Kate Nicholls, chief executive of UK Hospitality, said: ‘It’s clear which businesses are telling us that six months is undoubtedly helpful, but it creates another cliff edge.’

Martin McTague, chairman of the Federation of Small Businesses, added: ‘We need clarity from the government. Organizations cannot plan on a wing and a prayer.’

The mini-budget is expected to reverse the recent National Insurance hike and a planned increase in corporation tax from 19 per cent to 25 per cent.

Lower-than-expected fuel prices could give Chancellor Kwasi Kwarteng more room to cut other taxes to stimulate growth and avoid recession.

Yell Selfin, chief economist at KPMG, warned that the cost of the energy support package would not be independently verified in the mini-budget: ‘What gas prices will be in a year’s time is anyone’s guess,’ he said.

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