Bank chief says oil price dive is ‘good for UK’

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One of the most-senior figures at the Bank of England today claimed that the plunge in oil prices had, overall, been good for the UK economy, even as another of the country’s major industry players announced a dive in profits.

That was Lakshmi Mittal, one of London’s richest businessmen, who saw another £175 million knocked off his £7 billion fortune as  shares in steel giant ArcelorMittal nosedived. 

Despite the fact that tens of thousands of jobs have been lost in the North Sea and supporting industries as the oil price plummeted, Ben Broadbent, Deputy Governor of the Bank of England, said: “I think it’s a net good.”

He pointed out that after adjusting for inflation, wages for those still in employment had grown by around 7% in the UK during the last two years.

“A lot of that has to do with the drop in oil prices. That’s boosted consumption and UK growth overall,” he said.


But even as he was speaking, BG, which is in the final stages of a £34 billion takeover by rival Shell, said that its earnings had fallen 58% to $1.7 billion (£1.2 billion), almost entirely due to the collapsing oil price. Brent crude has almost halved in value since last June’s $68 a barrel to today’s $34.45. BG said: “Revenue and other operating income decreased 16% to $16.5 billion, reflecting the significant fall in realised sales prices.”

It added that it had cut spending by a third and already made cost savings of some $300 million a year in reaction to the oil-price collapse. 

Broadbent told the BBC that oil prices had hit the bank’s inflation targets.

“That drop has been a pretty protracted one, and it will keep inflation below 1%, in all likelihood, throughout this year,” he said. “But after that it’s likely to rise, and indeed we expect it to go back to the target, if not to say a little above it in two or three years.”

Billionaire Mittal will spend more than $1 billion keeping his family’s stake in ArcelorMittal at 37% as it raises $3 billion from investors and sells assets worth $1 billion to get through the slump caused by cheap steel imports from China. 

Mittal had already said his firm would not pay a dividend for 2015, giving up more than £130 million of income for his family. 

ArcelorMittal today reported  losses of $7.95 billion for last year, including $4.8 billion of writedowns, and added that it would continue to cut costs. 

The company’s shares tumbled by more than 9%, or 35 cents, to  3.30.

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February 6, 2016 |
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