As winter draws near, European gas prices have surged to their highest levels since March this year. This increase can be attributed to mounting geopolitical tensions, concerns about potential gas shortages, and the arrival of colder weather.
The exacerbation of the political crisis in the Middle East, coupled with substantial damage to the primary gas pipeline infrastructure connecting Finland and Estonia, has wrought significant disruption in the gas market, pushing prices skyward.
The benchmark for "month-ahead" European gas contracts has witnessed a remarkable surge, more than doubling since late February, with prices now standing at €53.29 per megawatt hour, up from a mere €25 in July.
Similarly, the United Kingdom has experienced a noticeable uptick in gas prices this week. "Day-ahead" prices have reached their highest point since early April, at 121p per therm, and the "month-ahead" contract now sits at 133p per therm, the highest since mid-March.
If the relentless rise in gas prices persists throughout the winter, it will inevitably result in the necessity for price hikes, causing consumers to grapple with a reduction in disposable income. This upward trajectory of gas prices will also pose a challenge to the Bank of England and the government's endeavors to rein in inflation.
For hospitality businesses, which are already contending with consumers cutting back on visits and expenditures in preparation for the holiday season, mitigating the impact of increased gas costs through price adjustments will be an exceedingly challenging task.
To alleviate this inflationary pressure, government action to lower VAT for the hospitality sector would be a welcome and beneficial step. Such a move could provide a much-needed stimulus for an industry in dire need of support.
While there is an ongoing debate in the field of economics regarding the consequences of reducing VAT, it is evident that, in the short term, recalibrating VAT downward for hospitality businesses might be the lifeline they require to weather the storm.
