27 May 2022
4 mins clock icon

UK Chancellor unveils energy levy

By Daniel Richards

  • The British Chancellor of the Exchequer, Rishi Sunak, unveiled the government’s emergency response to the cost-of-living crisis yesterday. This included a 25% ‘temporary targeted energy profits levy’ on the energy sector – a windfall tax in all but name – which he said would raise around GBP 5bn, which will be used to fund support for households struggling with higher energy bills in particular. GBP 15bn of support for households will come in the form of a GBP 650 one-off payment (in two instalments in July and in the autumn) to most of the 8mn households on means-tested benefits which is in addition to a GBP 400 grant on energy bills for all households (which replaces the previous repayable discount), a GBP 150 rebate on council tax and further support for pensioners and the disabled. The windfall tax will remain in place until 2025 or until energy prices subside to more normal levels and has received pushback from some firms as BP has said that it will ‘now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans.’
  • The Turkish central bank held the benchmark one-week repo at 14.0% at its May policy meeting yesterday. This had been widely anticipated, despite headline inflation having risen to 70.0% in April, thereby leaving real interest rates deep in negative territory. Explaining the decision to hold rates pat, the bank’s communiqué stated that the committee ‘expects disinflation process to start on the back of strengthened measures for sustainable price and financial stability along with the decline in inflation owing to the base effect and the resolution of the ongoing regional conflict.’ With rates unlikely to be changed in the near term, eyes are on the ‘comprehensive review of the policy framework’, which the central bank stated ‘continues with the aim of encouraging permanent and strengthened liraization in all policy tools of the CBRT.’
  • Australian retail sales expanded 0.9% in April, broadly in line with 1.0% consensus but slower than the 1.6% seen the previous month. The data suggests that household savings through extended lockdowns are providing support in the face of mounting costs.
  • There were 210,000 initial jobless claims in the US in the week to May 21, in line with consensus 215,000 and little changed from the 218,000 the previous week. The US labour market continues to show signs of strength, providing the Federal Reserve to focus squarely on curbing inflation.

Today’s Economic Data and Events

18:00 US University of Michigan sentiment, May final. Forecast: 59.1

Fixed Income

  • A sharp swing in risk sentiment, bolstered by some positive results in US equity markets, helped to temper an early rally in the US Treasury market. Yields on the 2yr UST held relatively steady, slipping by about 2bps by the end of the day to 2.4758% though it could have been lower if not for a reversal toward the end of trading. On the 10yr, yields closed with little change despite moving within a 10bps range from bottom to top. The 10yr UST settled at 2.7469%.
  • In European bond markets pricing was more negative. Yields on the 10yr bund added about 5bps to close at 0.993% while the 10yr gilt yield closed up by 6bps to 1.966%.
  • Moody’s affirmed their ‘B2’ rating on Egypt but changed the outlook to negative from stable while at the same time they affirmed Kuwait’s ‘A1’ rating with a stable outlook.


  • A pull toward risk assets helped to sink the dollar overnight with the broad DXY index down by 0.2% to 101.83. Losses were consistent across all currency peers with EURUSD adding 0.4% to 1.0725 and GBPUSD gaining by 0.2% to 1.26 figure. Japanese yen managed to strengthen against the dollar as well with USDJPY down 0.16% at 127.12.
  • In commodity currencies CAD led the way higher. USDCAD fell by 0.34% to 1.2773 while both AUDUSD and NZDUSD showed smaller gains to 0.7098 and 0.6479 respectively.


  • Positive risk sentiment buoyed equity markets yesterday. In Europe, the composite STOXX 600 gained 0.8% as the DAX closed up 1.6% and the CAC 1.8%. The FTSE 100 added 0.6% on the day.
  • The move higher was followed later in the day in the US where all three major benchmark indices made strong gains, with the Dow Jones, the S&P 500 and the NASDAQ added 1.6%, 2.0% and 2.7% respectively.
  • At the start of the day the Nikkei had closed down -0.3% but the Shanghai Composite closed 0.5% higher. They are currently trading up 0.7% and 0.8% in early trading, while the Hang Seng has added 3.1% so far. Strong earnings in the Chinese technology space are providing support to sentiment this morning.


  • Oil prices closed considerably higher overnight with Brent settling up almost 3% at USD 117.40/b and WTI adding more than 3.4% to USD 114.09/b. commodities generally look to have been caught in the broad market upswing overnight, even as there was no direct catalyst to support the move higher.
  • The EU council will meet early next week with focus on whether they will indeed go ahead with an embargo on Russian oil. Resistance from some member states that rely heavily on Russian oil may lead to a watered-down restriction on trade with Russia.

Click here to download charts and tables

Written By

Daniel Richards Senior Economist

There was an error during your feedback!

Your feedback is valuable to us and will help us improve.

Daniel Richards

Related Articles

Subscribe to our newsletter and stay updated on the markets

There was an error during your newsletter subscription!

Please try again to stay updated with all the latest financial news and valuable insights.

Thank you for newsletter subscription!

To stay updated with all the latest financial news and valuable insights.