Small Cap Value Report (Weds 7 Sept 2022) - Energy. HFD, FSJ, SOM, HEAD, AVON

Good morning from Paul amp; Roland!

Govt energy measures

Press reports are saying that a huge series of support measures are in the pipeline from the Govt, to cap household energy bills at around the current level. Plus big support for business. All at a massive cost of somewhere between £100-170bn. People will have different views, but mine is strongly supportive (although we don't know the details yet). 

The biggest driver of high, and rapidly rising inflation, is energy costs (per the Bank of England analysis I copied here recently). Therefore putting a hard cap on these energy costs is the most effective way to stop inflation in its tracks. 

The knock-on effects of another winter of discontent, with the usual culprits going on strike demanding (say) 15-20% pay rises, should instead now be easier to deal with at a lower level, since inflation might even begin to fall in a few months' time, possibly. Instead pay rise deals might now be struck in a more palatable range of say 5-10%, and be one-offs, rather than getting into a hyperinflationary spiral, which would have happened if energy bills had been allowed to soar to say £6k per household. So it looks as if household concerns should...