United Kingdom: Selected Issues

International Monetary Fund

No 2023/253, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper analyzes the impact of the energy price shock on UK households and firms and describes the energy support measures introduced by the UK government. The paper also provides IMF staff’s assessment of these measures and sets out some options to optimize the policy response to a possible resurgence in energy prices. These include structural measures to ensure energy security and raise resilience to spikes in energy prices, and options to refine, especially the targeting of, support measures that could be introduced in response. Retail energy prices in the UK have seen greater pass-through from wholesale prices than in regional peers. Broader business support should be targeted at viable but financially vulnerable firms and focus on limiting scarring while facilitating the adjustment to higher energy prices. Liquidity support may also be appropriate to enable energy providers to meet their margin calls while continuing energy purchases on wholesale markets. At the same time, support should be structured in a way to prevent moral hazard by management and investors.

Keywords: UK business investment; LDI crisis; United kingdom's LIABILITY-DRIVEN investment; energy support scheme; LDI fund; Energy prices; Private investment; Pension spending; Nonbank financial institutions; Labor force participation; Europe; Global (search for similar items in EconPapers)
Pages: 57
Date: 2023-07-11
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