Liz Truss's energy bills plan helps lift pound from two-year low

·Reporter
·2 min read
The pound rose on the back of the energy bills plans. Photo: Matt Cardy/Getty Images
The pound rose on the back of the energy bills plans. Photo: Matt Cardy/Getty Images

Sterling (GBPUSD=X) rose from a two-year low as traders digest reports about new prime minister Liz Truss's energy bills policy amid the cost of living crisis.

The incoming PM has reportedly drafted plans to freeze energy bills for UK households at or below the current level of £1,971 ($2,300), in an effort to help with soaring cost of living.

Truss has settled on a system that will help avert a planned sharp rise in the price cap, which is due to jump 80% from October to £3,548 a year.

Under the proposals, energy regulator Ofgem will effectively be sidelined and the price cap abolished.

The government will instead create a new unit price that Britons will pay for electricity or gas, with energy suppliers expected to take out government-backed loans to subsidise bills.

Read more: Liz Truss to be new UK prime minister: What this means for your taxes, bills and savings

According to Bloomberg the proposals could cost £130bn over the next 18 months, and around £40bn earmarked for a package to help UK businesses lower their energy bills.

Reports of Truss' planned energy bills freeze, provided a boost for the down-trodden pound after declining for three months in a row and amid soaring inflation and the threat of a recession.

Sterling jumped as much as 0.7% against the dollar to $1.598 in afternoon trade after sliding to its lowest since March 2020 on Monday.

"The pound has lifted slightly against the dollar now some certainty has been injected into government but investors are still largely treading water in the absence of any detail of what her plans may be, mindful of the monumental task she faces," Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said.

However, analysts have warned that Truss could make policy mishaps that could worsen the economy and the pound further.

Neil Wilson, chief market analyst at Markets.com, said: "The fear is that Truss makes policy mistakes that deepen the UK’s economic problems, and this leads to further sterling weakness.

"GBPUSD approached the 1.1440 area, a level it last traded only briefly in 2020 at the peak of the pandemic sell-off and perilously close to levels last traded in the mid-eighties, before mounting a fightback to 1.16 this morning.

"Gilt yields also pulled back after earlier spiking, perhaps a sign that a lot of the bad news for the UK economy, inflation and Trussonomics is priced?"

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