A recurrent theme in the headlines, AI is now a hot topic amid the EU-UK relations ‘reset’. UK officials have raised concerns that plans to adopt large swathes of EU regulations could stifle AI innovation, which the UK government considers a significant future driver of productivity and growth.
Another major challenge to UK and global growth – disruption in the Strait of Hormuz – doesn’t appear to be abating. Iran’s latest ceasefire proposal features a plan to charge fees for ships passing through the strait.
In good news for UK businesses, guidance to help traders claim compensation for indirect costs stemming from emission-reduction schemes has been published by the government.
AI alignment raises concerns
As progress towards the UK’s adoption of EU rules to facilitate ‘reset’ alignment progresses, new concerns are being raised by UK officials on what this could mean for British industry.
According to reporting by the FT, the latest debate is on whether the UK adopting EU regulations that could “smother” British innovation.
This is particularly pronounced in relation to AI, which Westminster has placed significant hopes on to spur productivity and, in turn, economic growth.
The EU’s AI Act creates new rules for companies developing AI, while also having what’s been described as the world’s strictest regulatory framework for machine learning.
By contrast, one official from the Department for Science, Innovation and Technology (DSIT), told the FT that the UK’s “more laissez-faire approach” is seen as a positive for attracting investment.
They warned that the UK needs “opt-outs” from these regulations, while the European Commission (EC) has “started from the position of alignment”.
UK technology minister Liz Kendall is also expected to push for more home-grown AI development in a speech tomorrow (29 April), highlighting the vulnerabilities arising from overreliance on the US tech sector.
‘Hormuz-first’ proposal
Iran’s proposed ceasefire deal, shared yesterday (27 April), addressed opening the Strait of Hormuz at the expense of other issues, such as the country’s nuclear programme and the economic sanctions imposed upon it.
Dubbed the ‘Hormuz-first’ offer, the proposal was focused on ending the US blockade of the waterway, also stating that Iranian attacks on commercial shipping transiting the strait would end.
However, in a bill being prepared for the Iranian parliament, other terms include a demand that shippers pay a fee to transit the straits, which had been free before the war.
According to Guardian reporting, diplomats have expressed skepticism at this approach. One official involved in talks said:
“Hormuz is a byproduct of the war, so how can this be tackled first?”
International Maritime Organization secretary general Arsenio Dominguez said that a toll fee for ships was not legal:
“There’s no legal basis for the introduction of any tax, any customs, or any fees on straits for international navigation.”
Economic fallout
Despite questions about the efficacy of the US blockade, which has been “fragmented” in its approach according to some reports, the Iranian economy is starting to suffer from the impact of the disruption to its shipping networks.
Economists estimate that Iran’s inflation rate is currently at 70%, while the International Monetary Fund (IMF) has predicted that Iranian GDP will fall 6.1% this year.
A number of G7 countries, most notably the UK, also saw the IMF downgrade their growth prospects for the year. Germany’s economic ministry revised its own forecast down by half to 0.5% last year week.
This news preceded chancellor Friedrich Merz’ comments criticising the US’ decision to go to war and its team of negotiators, neither of which he said had any “truly convincing strategy”.
Brent crude was trading at US$110 a barrel this morning. Having reached a peak of almost US$120 in March, it had dropped below US$100 per barrel during the initial ceasefire, in anticipation of the first round of peace talks.
In the UK, consumers are set to feel the strain on energy prices later in the year. It’s currently anticipated that the energy price cap, which limits the amount households pay for gas and electricity bills, will rise £200 when it’s updated at the end of June.
That prediction comes alongside the news that BPs’ Q1 profits more than doubled on the previous years’ figures, as the energy giant reported gains of £2.4bn.
Compensation parameters for UK emission-reductions schemes
The government has published guidance for UK businesses applying for compensation to cover the indirect costs of the UK Emissions Trading Scheme (UK ETS) and Carbon Price Support Mechanism (CPS).
The two schemes, which are designed to support the UK’s reduction of carbon emissions, are set to “increase retail electricity prices in the short to medium term”, the government writes. This in turn poses a greater risk of ‘carbon leakage’, the offshoring of high-emission production to countries with less stringent climate regulations,
To protect UK industry from higher costs and deter carbon leakage, the government has introduced compensation schemes to support the UK’s most “electricity-intensive businesses”, and particularly those that “operate in internationally competitive markets”.
Businesses can check whether they are eligible for compensation here. This will be determined by two factors.
Firstly, they must be manufacturing products in an eligible sector, which are set out using four-digit Standard Industrial Classification (SIC) codes. These sectors and their codes are listed in the government notice.
Secondly, businesses must past the ‘5% test’. To be eligible for compensation, they must be able to show that the indirect carbon costs stemming from ETS and CPS amount to 5% or more of their gross value added.
The 5% test was previously used when the UK was a member of the EU and businesses adhered to the EU ETS.
Other news in the headlines
- A Commons Defence Committee report calls for the government to pursue closer cooperation between Australia-UK-US (AUKUS) members
- There’s speculations that if poor local election results for Labour leads to chancellor Rachel Reeves’ leaving her post, plans for a third runway at Heathrow could be at risk
Yesterday in Trade
- Global Trade Today previewed HM King Charles III’s visit to the US, seen as an opportunity to repair UK-US relations following president Trump’s latest tariff threats
- There was also an overview of upcoming challenges for the current UK Labour administration, with local election fears increasing and the impending fallout from former Downing Street chief of staff Morgan McSweeney’s parliamentary evidence about the decision to give Lord Mandelson’s the US ambassador post
You can read more about those stories here.
