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Worries over China saw the world economy tumble on 24 August, leading some to dub it ‘Black Monday’. How will this affect UK SMEs’ business gas prices?
While the world economy has been steadily growing stronger, weakness persists in the wake of the global financial crisis and ensuing downturn. The recent fall in stocks and commodity prices has sparked concerns of another disruption.
China is the source of the fall: concerns about slowing growth and the unsustainability of debt-fuelled spending in the world’s second largest economy have been building for some time. China’s impressive economic achievements have mostly been come from its prowess in manufacturing. But as factory worker wages have risen and younger Chinese expectations have increased, regional competition has begun to undermine the Chinese manufacturing miracle.
In response, China has tried to shift to a consumption model. While this has been successful to a degree, investment has still been a main pillar of the economy: massive sums have been committed to infrastructure. Recent stock market valuations of Chinese companies have caused concern of a bubble (along with, to a lesser extent, property prices).
The falls of ‘Black Monday’ appear to be a long-overdue correction in value.
While China has hastened to cut interest rates to take the pressure off, other markets in the developed world seem to be more resilient. While drawing conclusions at such an early stage is dangerous, the stock markets in Western countries have made up much of the ground lost.
The UK’s austerity programme and stress testing of banks has left it better placed to weather such shocks. As the pound’s value is likely to increase, UK goods would become more expensive to consumers elsewhere, potentially dragging down exports. Cheap business gas could be the main benefit for UK small to medium sized companies.
Commodities have dropped in price across the board. Seemingly of most importance to SMEs is the price of benchmark West Texas Intermediate crude oil, which recently dipped below $39 a barrel, down from $140 in 2008, a reduction of 72%.
While business gas prices have yet to see a decrease on the same scale, the recent flat growth in the rate business gas suppliers pay may be expected to lead to a fall. However, as coal and nuclear is shunned and gas pipeline developments stall, the current uncertainty could be the perfect opportunity to lock in cheap business gas prices.
More information on business gas is available on our dedicated page.
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