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Record profits and record prices, duh?
At the same time as wholesale Gas spot prices drop 50% within a month, British Gas has raised prices by 35% for 16 million British households.

The gas grid in Britain was built out in the 1970s as a result of the discovery of natural gas in the North Sea. Somehow it was not foreseen that one day the gas would run out and the country would become dependent on imports.

The head of British Gas, Phil Bentley speaking on Radio 4s World at One, had the colossal nerve to say that people would consume less as a result and that was a good thing. He said the firm would be working hard with its poorest customers to ensure their homes were energy efficient.

Using the newly-discovered interest in the environment as the cover for an outrageous price hike is an interesting twist – allowing the utility companies to claim that they are stewards of this rare resource, managing it in the interests of the community.

This kind of manipulation is made considerably easier by the weakness of the current Labour administration in the UK, riven by internal infighting and an indecisive leader.

Wholesale gas prices have fallen this month as the oil price has retreated from its record highs, but remain much higher than a year ago.

British Gas’s parent company, Centrica, which will on Thursday publish first-half profits, blamed the action on the high wholesale price of gas. The company said operating profits for British Gas Residential, its household supply business, had fallen to £166m in the first half of 2008, from £533m in the first half of 2007.

Centrica’s shares rose 2.7 per cent to 318p after the news, reflecting relief among investors that the company was passing the gas costs on to its customers.

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Centrica supplies 20-25 per cent of the gas British Gas needs from its own gas fields, including the large Morecambe Bay field in the Irish Sea. Its upstream gas production division is expected to report strong profits on Friday.

Joe Malinowski of energy switching website TheEnergyShop.com said that while British Gas profits were being squeezed by rising gas costs, Centrica’s gas production business was benefiting. “They will be making very good money on the upstream side, and the question is whether they should have used some of that to keep bills down.”

Higher energy bills will drive household inflation up from the current level of 3.8 per cent, which is already almost double the government’s target of 2 per cent, and will make the prospect of interest rate cuts less likely.

Several economists forecast that, in the wake of British Gas’s action, the Consumer Prices Index would rise from 3.8 per cent to reach 5 per cent by the autumn.

George Buckley of Deutsche Bank said: “Whichever way one looks at it, inflation is likely to peak at close to 5 per cent over the coming months – probably in September.”

The shadow energy minister, Charles Hendry, said: “The government has not done enough to improve energy efficiency in the home, they have not built sufficient gas storage and they haven’t succeeded in negotiating an open market across the European energy sector.

“As a result of this, people are in for a desperate time this winter, as millions of families will face real hardship and an extra million more people are likely to join the 4.5 million already in fuel poverty.”

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