REFINING: BPCL Plans Mumbai Refinery Maintenance in Q2
Oct-29 08:55
BPCL plans to shut a 6m tons CDU unit and some secondary units at its 12m tons Mumbai refinery for maintenance in Q2 2026, according to Reuters.
- The works are planned to last for 30 days, according to BPCL executive director Abhai Raj Singh Bhandari.
- BPCL plans to set up a petro residue FCC at the Mumbai refinery by Sept. 2029.
- The refinery will stop making fuel oil after commissioning of 2m tons per year FCC.
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JPY: EURJPY has fallen 0.65%
Sep-29 08:54
- The Dollar is still the worst performer against the Yen within G10 Currencies, albeit just off its worst level at the time of typing.
- Next Immediate support in USDJPY comes at 148.38.
- EURJPY has dropped 0.65% from its Overnight peak of 175.13, and the cross now looks at testing the 174.00 figure.
UK FISCAL: VAT increase impacts on fiscal, CPI, monetary policy (2/2)
Sep-29 08:42
- We do not think that the MPC would be able to fully look through a VAT increase and continue to cut Bank Rate. It would likely lead to a pause, in our view, and even by placing a question mark over the feasibility of a VAT hike over the weekend might be enough to spook the MPC's swing voters to vote to keep Bank Rate on hold in November (albeit there is not much priced for this prospect by markets anyway - and we still think the chance is under-priced even given the weekend's news).
- The MPC is very focused on where headline CPI goes in the short-term and its impact on to inflation expectations. Particularly with food prices having increased notably and with continued commentary that the weekly supermarket shop, household energy and petrol prices have an outsized impact on inflation expectations it is important to note that of the "food and non-alcoholic beverages" category around 20% is subject to VAT. For the broader "food, alcohol and tobacco" category this rises to 40%.
- So if there was a VAT increase the MPC may want to wait to see how higher CPI data in Q1 filter through to inflation expectations and potentially even wait for more hard data on wage settlements in Q1 / April 2026. This could potentially even push a cut even later than April (as a lot of the wage data will not be fully available until June). Terminal rates may not be impacted, but timing almost certainly would be, in our view.
- The MNI Markets team thinks that an increase to the basic rate of income tax would be more appropriate for the economy than an increase in VAT. And despite this increasing tax on "working people" it would likely be better than the alternative of constant tinkering around the edges and only leaving another small c. GBP10bln of fiscal headroom, which would be vulnerable to more speculations over more tax increases next year.
- Chancellor Reeves may make more media appearances this morning ahead of her midday Labour Party Conference address.
UK FISCAL: VAT increase impacts on fiscal, CPI, monetary policy (1/2)
Sep-29 08:40
- Chancellor Reeves seemed to commit a little more firmly against a VAT rise this morning in her Sky News interview (we will be watching closely her language at the Labour party conference where she is due to speak at midday - but probably with a more friendly audience).
- In terms of the fiscal revenues, the Treasury's illustrative effects of a change indicate that a 1ppt increase in VAT would raise GBP8.8bln in 2026/27, GBP9.2bln in 27/28 and GBP9.55bln in 28/29.
- As we noted last week, although the natural response is to think of VAT as a retail tax, it is much broader than that, also applying to hospitality and construction as well as across a number of other sectors.
- Looking at the impact on CPI, the standard rate of VAT is not paid on "essential" goods or household energy. It does apply to vehicular fuels (although this could be offset by a VED reduction) and also does apply to non-essential foods (confectionary, crisps, ice cream) as well as mineral waters and soft drinks.
- We estimate that around 60% of that CPI basket would be directly impacted by a VAT increase. So a 1ppt increase in VAT from 20% to 21% would increase headline inflation by around 0.5ppt if fully passed through.
- The last increase in VAT was implemented in January 2011 (2.5ppt increase from 17.5% to 20%). The timing of this - just after the Global Financial Crisis - makes it hard to use this as a basis for comparison (and VAT eligibility has changed somewhat since then too) but we note that Y/Y CPI rose from 3.26% in October 2010 to 4.35% by February 2011 (an increase of 1.09ppt), and continued to rise to a peak of 5.18% in September 2011.
