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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK factory output growth jumps; US job openings rise; record low eurozone unemployment – as it happened

United Kingdom United States ING FCA European Union London Nationwide Omicron Nick Bunker IHS Markit
A worker inspecting a Trent XWB Aero engine at the Rolls Royce factory in Derby
A worker inspecting a Trent XWB Aero engine at the Rolls Royce factory in Derby Photograph: Fabio De Paola/The Observer

Closing post

Time to wrap up - here are today’s main stories:

We’ll be back in the morning. GW

Britain’s FTSE 100 index has begun February with a 1% rally.

The blue-chip stock index has closed 71 points higher at 7536 points.

Silver miner Fresnillo (+4%) and technology-focused investor Scottish Mortgage Investment Trust (+3.6%), followed by a clutch of miners and oil giant Shell.

Banks and travel companies also had a solid day.

But Ocado led the fallers, dropping almost 5%.

Concerns about the pace of US interest rate rises may have faded a little, as michael Hewson of CMC Markets explains:

European markets have got off to a strong start to February, after last night’s push back by a number of Federal Reserve officials, who poured cold water on some of the hawkish narratives being put out with respect to the Federal Reserve’s hiking timeline.

This timely corrective, from the likes of Bostic, George and Daly, appears to have reset expectations of a 25bps move in March, and away from the narrative that had been suggesting we might see a move of 50bps.

This corrective could get added weight later this week, if we get a weak January payrolls report on Friday. Over the last two weeks we’ve seen consensus expectations revised lower from 238k to 150k, although we are seeing some estimates which suggest that we might see a negative number, due to an increase in sickness levels as a result of Omicron.

Amongst the best performers we’re seeing some decent gains amongst the basic resource and banks, with the likes of Rio Tinto, Glencore, and Anglo American near the top of the pile, while HSBC and Lloyds Banking Group are also doing well.

Supermarkets have been a mixed bag after the latest Kantar grocery sales data for the 12 weeks to 23rd January showed a fall of 3.8%, on a like for like basis. Rising prices also played a part in the decline, with prices rising sharply in the period after Christmas, by as much as 3.8%, a rise of 0.3% from December. In terms of market share only Tesco and Waitrose improved their market share over the 12-week period, despite weaker sales compared to a year ago, helping to push Tesco shares up on the day.

Sainsbury saw sales fall 4.8% year on year, as well as losing some market share, with the shares slipping back. Vodafone and BT shares are also lower ahead of their earnings numbers later this week.

The family behind Blackwell’s, the UK’s largest independent bookseller, has put the business up for sale after ditching a plan to hand it to employees.

A deal would take Blackwell’s, which operates 18 shops and a website, out of family control for the first time in its 143-year history.

The retailer said it was looking for an external investor after a plan to put the business into employee ownership fell through. It said that goal “ultimately proved to be difficult, due in large part to the ongoing uncertainty on the high street caused by Covid-19”.

Blackwell’s, which was founded in Oxford and operates Heffers in Cambridge as well as flagship stores in London and Edinburgh, said underlying sales for the year to December 2021 rose 1.9%, a figure that suggests falling store sales and rising online trade.

Oil giant Exxon Mobil has posted its biggest profit in almost eight years, as it reaps the benefits of the rally in energy prices.

Exxon made fourth-quarter profit of $8.8bn, which works out at $2.08 per share, above analysts’ forecast of $1.94. Soaring oil and gas prices, higher volumes and asset sales all boosted its income.

In the same quarter a year ago, Exxon made adjusted profit of 3 cents a share.

For the full year, Exxon made profits of $23bn, a recovery from the $22bn loss in 2020. It is conducting a $10bn share buyback programme to return money to shareholders.

Exxon’s CEO, Darren Woods, says:

“Our effective pandemic response, focused investments during the down-cycle, and structural cost savings positioned us to realize the full benefits of the market recovery in 2021,”

That market recovery has also driven up the cost of fuel at forecourts and petrol stations, and is about to see UK families hit with a surge in energy bills in April.

Updated

Back on Wall Street, the S&P 500 index is still trading lower - down around 0.4%.

US JOLTS shows 10.9m vacancies

The number of openings at US companies has risen, while the number of Americans quitting their jobs remains high.

There were 10.925m unfilled positions at US firms in December, up from 10.775 in November, back towards the record highs last autumn.

The Labor Department also reports that nearly 4.4m workers quit their jobs last month, slightly down on the record 4.5m quits in November.

Just 1.17m workers were laid off, down from 1.3m in November, as firms looked to hold onto staff due to problems filling vacancies.

The report shows that America’s jobs market remains tight, even as the Omicron variant hit the economy at the end of last year.

Here’s some analysis from economist Nick Bunker of jobs site Indeed.com

A second survey of America’s factories, from the Institute of Supply Management also shows that growth slowed in January, but prices kept rising.

The ISM’s healthcheck on purchasing managers report found that the sector kept expanding, in a “demand-driven, supply chain-constrained environment”.

Its January Manufacturing PMI came in at 57.6%, a decrease of 1.2 percentage points from December’s 58.8%, with growth in new orders and production both slowing.

The prices charged by manufacturers increased, “indicating that supplier pricing power continues to rise.”

The employment index rose, while many firms still reported problems with suppliers and deliveries.

US manufacturing growth hits 15-month low

US manufacturing grew at the slowest rate since October 2020 last month, as demand softened and factories struggled to hire staff.

Data firm IHS Markit’s US manufacturing PMI, just released, found that output and new order growth slowed last month, amid supply and labor shortages.

The rate of job creation eased to the lowest rate in the 18-month sequence of growth, while absences due to the surge in omicron cases also led to staff shortages.

But encouragingly, business confidence picked up to 14-month high, with purchasing managers hopeful that supply chain problems were easing.

This meant the IHS Markit US Manufacturing Purchasing Managers’ Index dropped to 55.5 in January, down from 57.7 in December, showing slower growth. It’s a little higher than the earlier released ‘flash’ estimate of 55.0, implying the sector picked up towards the end of January.

UPS stock jumps after strong earnings

Shares in logistics giant United Parcel Service have jumped 13% after it reported strong results before the opening bell.

UPS beat expectations with its profits and revenues in the last quarter, as its domestic package business continued to perform well, and lifted its quarterly dividend by almost 50%

UPA also gave a rosy outlook for 2022, predicting revenues would beat market expectations, as higher shipping rates and e-commerce demand boosted its operations.

After ending a volatile January with a late rally, Wall Street has begin February cautiously.

The Dow Jones industrial average is flat in early trading, while the broader S&P 500 index has dipped by 0.2%.

The Nasdaq Composite index of tech stocks has dropped by 0.6%.

In other car news...Aston Martin plans to phase out vehicles that rely solely on the internal combustion engine, and only sell electric or hybrid cars within four years.

Lawrence Stroll, chair of the luxury carmaker, has told the FT:

“By 2026 we will be fully electrified.”

Customers will still have the option of a combustion engine in its hybrid cars, though, with Stroll saying:

“I can’t tell you that 100 per cent of Aston Martin customers want an electric vehicle.

Tesla to fix ‘rolling stop’ feature over safety concerns

A Tesla car dealership store in Ross Township, Pennsylvania.
A Tesla car dealership store in Ross Township, Pennsylvania. Photograph: Ted Shaffrey/AP

Tesla is recalling nearly 54,000 cars and SUVs because their “Full Self-Driving” software lets them roll through stop signs.

Associated Press has the details:

Documents posted on Tuesday by US safety regulators say Tesla will disable the feature with an over-the-internet software update. The “rolling stop” feature allows vehicles to go through intersections with all-way stop signs at up to 5.6mph (9 km/h).

Tesla agreed to the recall after two meetings with the National Highway Traffic Safety Administration (NHTSA), according to documents. Tesla said it knows of no crashes or injuries caused by feature.

The recall covers Model S sedans and X SUVs from 2016 through 2022, as well as 2017 to 2022 Model 3 sedans and 2020 through 2022 Model Y SUVs.

Selected Tesla drivers are “beta testing” the “Full Self-Driving” software on public roads. The company says the cars cannot drive themselves and drivers must be ready to take action at all times. A firmware release to disable the rolling stops is expected to be sent out in early February.

The pound has risen to its highest level in nearly a week against the US dollar, as traders move out of safe-haven assets into riskier currencies.

Sterling has gained half a cent to above $1.349, as markets anticipate UK interest rates rising on Thursday.

Lawrence Kaplin, chief market strategist at international business payments firm Equals Money, says:

Market attention is now firmly on Thursday’s Bank of England rate-setting meeting where rates are 100% priced in to rise from 0.25% to 0.5%.

Following last week’s US Fed meeting where markets were completely wrong-footed by a very hawkish Chair Powell, positioning ahead of the MPC is returning to neutral as traders square up for fear of being caught out again.

Back in the markets, shares have pushed higher in the City and across Europe.

The FTSE 100 index of blue-chip shares is nearly 80 points higher, or 1.05%, while the pan-European Stoxx 600 is 1.5% higher as stocks make a good start to February.

UK CO2 industry strikes deal to prevent shortage

Production of carbon dioxide for use in producing meat, beer and fizzy drinks has been secured for at least three months under a new industry deal.

Meat processors, brewers, bakers and soft drink producers all use CO2 in making and packaging their goods. It is also required for the humane slaughter of animals including pigs and chickens, and is used by hospitals and nuclear power plants.

A short government statement said a new deal would enable CF Fertiliser plant in Billingham, County Durham, to continue to operate.

The plant was scheduled for potential shutdown this week after a three-month emergency deal brokered by the government came to an end on Monday.

That deal was prompted by a crisis in CO2 supplies in late September as high energy prices combined with annual maintenance shutdowns to bring UK production to a near halt.

UK food producers and brewers had warned there could be shortages of meat, beer and fizzy drinks, as well as higher prices, unless CO2 supplies were secured.

Here’s the full story:

UK bank Virgin Money struck an upbeat tone about the UK recovery this morning, as the economic backdrop strengthened and Covid-19 restrictions are eased.

Virgin Money’s chief executive, David Duffy, told the City:

“Virgin Money’s performance in the first quarter has been strong. Our balance sheet is performing well, asset quality remains robust and we have increased guidance on net interest margin for 2022.

We are optimistic about the pace of recovery of the UK economy based on growing consumer and business confidence, underpinned by lower unemployment.”

The net interest margin is the difference between the rates at which Virgin Money raising money through deposits, and lends it out to borrowers.

Virgin Money also reported a 3% rise in unsecured lending, driven by growth in credit cards, while mortage lending dipped 0.5%. Business lending fell by 2.2%, due to “weaker market demand, seasonality and lower Government-backed lending”.

1,500 jobs at risk at Tesco

Almost 1,500 jobs are at risk at Tesco as the supermarket ditches night shifts in more than 80 stores and almost 40 petrol stations.

The potential job cuts emerged only a day after the UK’s biggest supermarket chain said it would be shutting its Jack’s discount chain, with the potential loss of about 130 jobs, and closing more of its deli and meat counters.

Overnight stock replenishment will now be done during the day in 36 large stores and 49 convenience stores. At 36 stores, petrol stations will be converted to be “pay-at-pump only” overnight.

Jason Tarry, the chief executive of Tesco’s UK and Irish business, said:

“We operate in a highly competitive and fast-paced market and our customers are shopping differently, especially since the start of the pandemic.

“We are always looking at how we can run our business as simply and efficiently as possible, so that we can reinvest in the things that matter most to customers. The changes we are announcing today will help us do this.”

Updated

Eurozone unemployment at record low

Unemployment across the eurozone has dropped to a record low, as the region recovered from the economic shock of Covid-19.

Despite the impact of the Omicron variant, the number of unemployed people fell by 185,000 in the euro area last month, and by 210,000 in the wider EU.

That pulled the eurozone unemployment rate down to 7% in December, the lowest since the eurozone was created.

A year earlier it was 8.2%, before vaccine rollouts helped hospitality firms, shops and travel businesses to reopen, spurring the recovery.

Eurozone unemployment
Eurozone unemployment Photograph: Eurostat

Government spending programmes and job protection schemes, and the European Central Bank’s stimulus package, also supported the economy.

Paolo Gentiloni, European Commissioner for Economy, says the drop in unemployment shows the success of the ‘collective response’ to the crisis.

Carsten Brzeski of ING points out there are still wide regional differences, despite the recovery.

Except for the Netherlands, all eurozone economies saw unemployment rates dropping or at least remaining constant in December. Still, there are significant differences across the eurozone with unemployment rates ranging from 3.2% in Germany to 13% in Spain.

Demand for workers remains strong, resulting in vacancy rates breaking pre-pandemic highs. Admittedly, furlough schemes still support – part of – the job market, but the support has been reduced and we expect a further drop in furlough schemes in the coming months without adverse effects on unemployment.

FCA staff move closer to strike

The logo of the Financial Conduct Authority

Staff at the UK’s financial watchdog have taken a step closer to striking over planned cuts to pay and conditions, following an indicative ballot in favour of industrial action, my colleague Julia Kollewe reports.

The Unite union said its members who work for the Financial Conduct Authority had voted by 87% in support of industrial action in a non-binding ballot, without giving further details on the number of people who had voted.

It urged the FCA to come to the negotiating table and threatened to proceed to a full industrial action ballot unless a negotiated settlement is reached.

Unite, which is not formally recognised by the FCA as its staff union, argues that the pay cuts, drawn up by the new chief executive Nikhil Rathi as part of a transformation plan, would damage the interests of savers, borrowers and businesses by creating a “bargain basement regulator”.

The City watchdog plans to overhaul itself after scathing criticism over its handling of the London Capital & Finance (LC&F) investment scandal, which wiped out the savings of 11,600 investors. The FCA chair Charles Randell, a former Slaughter and May lawyer, is stepping down early from his post amid the turmoil.

The plan involves abolishing cash bonuses (which make up 10%-12% of pay), as well as what the union calls “unfair” changes to the staff appraisal system, plans to cut staff pension rights and lower pay for staff in Edinburgh.

Unite said pay inequality was unusually high by the standards of public sector regulators, arguing that the FCA has around 40 executives who earn more than the prime minister. The union said the changes had sent morale among FCA staff plummeting and led to an exodus.

The FCA, which employs 4,200 people, denied that the staff appraisal system was changing. It said it had already responded to staff concerns, by upping pay rises for those who meet their performance objectives to 5% this year and 4% next year from an initially planned 2%. New pay bands, including different pay ranges for those based outside London, meant that 800 of the lowest paid staff, such as support, would receive average pay rises of £3,800 this year, it added.

Sharon Graham, Unite general secretary officer, said:

“It is time for the FCA management to come to the negotiating table and ensure they avoid damaging the important work of the regulator. Unite will sit down and negotiate through ACAS [Advisory, Conciliation and Arbitration Service] as soon as the FCA agrees; the ball is in FCA’s court now.

“While the proposed cuts at the regulator is good news for fraudsters and rip-off merchants it is bad news for people with savings, loans, mortgages and pensions as experienced and committed staff are being forced out of the door.”

An FCA spokesperson defended the planned changes, saying the regulator had held 77 meetings with staff:

“The proposals in the consultation would ensure the FCA continues to provide one of the best, if not the best, employment packages of any regulator or enforcement agency in the UK. Under the proposals, most colleagues will receive base salary rises of at least 5% this year and 4% next, with many receiving significantly higher amounts.

“We have undertaken significant consultation with our colleagues on these proposed changes and expect to publish the outcome by March, following consideration by the FCA board.”

German unemployment fell in January, official figures showed this morning, despite the recent surge in Covid-19 cases.

The Federal Labour Office said the number of people out of work fell by 48,000 in seasonally adjusted terms to 2.345 million, pulling the seasonally adjusted jobless rate down to 5.1%.

Economists polled by Reuters had forecast a fall of 6,000.

Daniel Terzenbach, a senior official at the Labour Office, says:

“The job market got off to a good start in 2022.”

Back in the housing market, UK lenders approved more mortgages than expected in December.

The Bank of England reports that approvals for house purchases, an indicator of future borrowing, rose to above 71,000 in December, up from 67,859 in November.

That’s above the average in the year before the pandemic. It’s another sign that the housing market remained solid at the turn of the year, despite the end of the stamp duty holiday and the Omicron surge.

Joshua Elash, director of property lender MT Finance, explains:

‘With inflation beginning to bite and interest rates expected to rise further, we anticipate increased demand for mortgage borrowing in the immediate to short term as would-be homeowners seek to secure a good, fixed-rate mortgage before they become less attractive.

The BoE’s data also shows consumers borrowed an extra £831m in credit last month, including £386m more on credit cards.

That’s a little lower than the £1bn increase in November, showing that Omicron didn’t put a big dent in household borrowing.

Adam Hoyes, assistant economist at Capital Economic, says:

The £0.8bn rise in consumer credit in December shows that consumers exercised a touch more caution as Omicron COVID-19 cases surged at the end of last year, but it still suggests the economy didn’t collapse.

What’s more, with restrictions now eased and COVID-19 cases now much lower than they were at their peak in early January, consumers’ appetite for borrowing may soon strengthen a bit.

Household savings slowed in December, though. Around £2.7bn was deposited in banks and building societies, and £500m into National Savings and Investment accounts - much slower than the average monthly net flow of £10.6bn in the previous year.

Updated

UK factory PMI: What the experts say

Fhaheen Khan, senior economist at Make UK (which represents manufacturers) warns that cost pressures will continue to rise this year, piling pressure on producers:

Manufacturing continues to expand and recruit thanks to a robust backlog of work, although January has evidently been a bit slow for business as many companies aimed to get ahead of the inflation spiral by stock building just before the end of last year. Fortunately, there are early signals of lead times improving and the pace of input inflation slowing, signs which offer a glimmer of hope for the sector’s desire to return to normal.

However further cost pressures are just around the corner and this year will test the limits of manufacturers’ ability to survive as the economy continues to rebound. For now, it’s too early to say whether the precautionary “just in case” decisions manufacturers are making will serve to shield them from upcoming challenges.”

Factories fared well in the face of the omicron variant, says Maddie Walker, Accenture’s Industry X lead in the UK:

“The uptick in production output shows the UK economy is making a jump start in 2022, with manufacturers showing remarkable resilience during the Omicron wave. While the pandemic continues to pose threats on factories and labour shortages, we are seeing evidence that supply chain bottlenecks are easing.

However, with inflation set to surge, a sharp rise in prices of raw materials will be a major cause of concern this year. Many manufacturers continue to invest in digital technologies, like intelligent automation and 5G connectivity, to help overcome inflationary pressures and maintain their margins.

It’s a vital reminder that British manufacturers must revise their operations and upskill their workers in order to embrace digitisation and work towards long-term growth, improved worker safety, and productivity.”

Victoria Scholar, head of investment at interactive investor, points out that export growth remains modest, despite the improvement at supply chains:

UK January final manufacturing PMI hit 57.3, firmly above the 50 boom-bust divide and comfortably topping expectations for 56.9. However it was a slight slowdown month-on-month following December’s 57.9 point reading, extending the declines we’ve seen since the peak in May last year.

In the UK’s latest monthly GDP estimate for November, manufacturing was the biggest contributor to the production sector, increasing by 1.1%, with positive growth in 9 out of the 13 manufacturing sub-sectors. As supply chain bottlenecks start to ease, manufacturing and production have started to pick up. However demand growth remains sluggish driven by a slowdown in exports.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, says:

“The UK economy continued to strengthen at the beginning of the year buoyed up by strong confidence amongst the UK’s makers, higher job creation levels and output at the strongest rate since July 2021.

“There was some disappointment in the lowest levels of new orders since February 2021 but moderate improvements in export orders balanced out the weaker rise in domestic work.

But price pressures remain at “stomach-churning levels”, he adds:

Prices rose for another month and every month for the last two years as higher food, energy and material prices continue to act as a drag on business costs and recovery in the UK marketplace.”

UK factory output growth hits six-month high

British manufacturing output grew at the fastest pace in six months in January as factories shrugged off the impact of Omicron, and global supply chain pressures began to ease.

Factories have reported that output and employment grew at a faster rate last month, while inflation pressures became less intense.

The IHS Markit/CIPS Purchasing Managers’ Index (PMI) showed the output index rose to 54.5 in January - its highest since July 2021 - up from 53.6 in December.

That’s stronger than an initial flash estimate of 53.8 released last month, indicating that the economy may have strengthened as Covid-19 cases fell back from record levels last month.

Markit says:

Production volumes rose for the twentieth successive month in January. The rate of expansion accelerated for the third month running to its highest since July 2021.

Increased output reflected rising new order intakes, efforts to tackle backlogs of work and a slight improvement in export demand. Some firms also noted that supply chain stresses, staff shortages and slower growth of new work had stymied efforts to raise production further.

The headline PMI, which measures activity across the sector, dipped to a four-month low of 57.3 in January from 57.9 in December.

It was pulled down by a slowdown in new order growth, and faster deliveries from suppliers, as the strains on global supply chains eased (delays push up the PMI, as they typically show higher demand, rather than supply chain disruption).

UK manufacturing PMI, to January 2022
UK manufacturing PMI, to January 2022 Photograph: IHS Markit

But, manufacturers did warn that raw material shortages, supplier capacity, transportation delays and difficulty in sourcing goods were still issues.

Rob Dobson, Director at IHS Markit, says:

“UK manufacturing made a solid start to 2022, showing encouraging resilience on the face of the Omicron wave, with growth of output accelerating as companies reported fewer supply delays.

Causes for concern remain, however, as new orders growth slowed, exports barely rose, staff absenteeism remained high and manufacturers’ ongoing caution regarding supply chain disruptions led to the beefing up of safety stocks.

Updated

Here’s a breakdown of how UK supermarkets fared in the last three months:

Supermarkets were up against ‘tough comparisons’ against the high demand of the lockdowns at the start of 2021, with spending still 8.0% higher than pre-pandemic times.

Eurozone manufacturing PMI hits five-month high as firms regain momentum

Eurozone factories grew at the fastest pace in five months in January, as the manufacturing sector gained momentum.

Data firm IHS Markit reports that production, new orders and employment all grew at a faster rate, alongside encouraging signs that supply chain issues are starting to abate.

Its latest survey of purchasing managers across the euro area found that:

  • Final Eurozone Manufacturing PMI at 58.7 in January, up from 58 in December, showing faster growth [any reading over 50 indicates expansion]
  • Faster expansions in output and new orders; employment growth improves to five-month high
  • Least marked deterioration in supplier performance for a year

Austria (whose economy shrank in the last quarter of 2021 during Covid-19 lockdowns) had the strongest-growing manufacturing sector in January, while faster expansions were also seen in the Netherlands, Germany and Ireland.

Manufacturing growth in Spain was strong and unchanged from December, while slower improvements were seen for Italy, Greece and France.

Eurozone manufacturing PMIs
Eurozone manufacturing PMIs Photograph: IHS Markit

Input price inflation eased to a nine-month low, meaning costs rose at a slower rate.

But firms took “a more aggressive approach to price setting”, with factory gate charges rising at a faster rate -- showing that inflationary pressures are still rippling through the economy.

Chris Williamson, chief business economist at IHS Markit said:

“Eurozone manufacturers appear to be weathering the Omicron storm better than prior COVID-19 waves so far, with firms reporting the largest production and order book improvements for four months in January.

Prospects have also brightened, with a further easing in the number of supply chain delays playing a key role in prompting producers to revise up their expectations for growth in the coming year to the highest since last June.

Prices of savoury snacks, crisps and beef rose the most as grocery inflation increased to 3.8% in the four weeks to January 23, reports Reuters, adding:

Kantar also noted there was evidence of people scrubbing up as work from home directives ended and socialising increased.

It said razor blade sales rose by 14% and spend on deodorant increased by 20% as Britons strived to make themselves presentable.

There was also a Dry January effect -- sales of alcohol-free beer rose by 5%, while sales of retailer’s own-label ‘healthy’ ranges were up 8%.

UK grocery price inflation rises

Customers at a supermarket in London in January.
Customers at a supermarket in London in January. Photograph: Andy Rain/EPA

Annual shopping bills in the UK are set to rise by around £180 on average as inflation pushes up the cost of groceries.

Market analysts Kantar report that annual grocery price inflation rose to 3.8% over the last four weeks (to 23 January), up 0.3 percentage points from December.

Prices are rising on many fronts, and the weekly shop is no exception, says Fraser McKevitt, head of retail and consumer insight, at Kantar’s Worldpanel Division.

Like-for-like grocery price inflation, which assumes that shoppers buy exactly the same products this year as they did last year, increased again this month.

Taken over the course of a 12-month period, this 3.8% rise in prices could add an extra £180 to the average household’s annual grocery bill.

This squeeze is likely to push shoppers towards low-cost products, McKevitt adds:

We’re now likely to see shoppers striving to keep costs down by searching for cheaper products and promotions. Supermarkets that can offer the best value stand to win the biggest slice of spend.”

Last month, journalist and campaigner Jack Monroe warned that lower-cost alternatives were “stealthily being extinguished from the shelves”, hurting the poorest in society:

Kantar also reports that supermarket sales in the UK fell by 3.8% over the latest 12-week period, despite the omicron variant hitting hospitality over the Christmas period.

Basket sizes are now 10% smaller than this time last year, hitting their lowest level since the beginning of the pandemic, while footfall increased by 5% as every major retailer was busier in their stores.

McKevitt adds:

Changing habits were most marked in London, where take-home sales of food and drink decreased by 11%. This suggests that people in the capital were the quickest to embrace eating out in cafés, pubs and restaurants, as many of us returned to city centres.

Retail analyst Steve Dresser, the chief executive of Grocery Insight, has tweeted more key points:

Updated

FTSE 100 jumps

In the City, stocks have made a solid start to February.

The FTSE 100 index of blue-chip shares has jumped 0.9%, or 70 points, to 7534 points.

Investment trust Scottish Mortgage, which invests in technology companies, is leading the risers, up 3.3%, following the recovery on the Nasdaq last night. Mining companies are also higher.

European stock markets have also rallied in early trading, after a weak January.

Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub, reports that the cost of living squeeze is weighing on demand:

“Mortgage demand has picked up a little in the second half of January. But overall, we’re noticing borrowers are turning cautious, fearful of the economic outlook.

While there is a fundamental shortage of properties on the market, and housing supply generally, all the factors on the demand side are going in the wrong direction. National Insurance, energy bills, the cost of food, fuel and mortgages are all going up. There could be a rude awakening in 2022 for those who believe house prices can only ever go up.”

Limited supply of homes on the market could support prices, though, points out
Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco:

“Though the property market smashed it in January, the rest of the year will likely see a cool-down in the rate of price growth due to inflation and rising interest rates. However, values are unlikely to fall as mortgage rates remain exceptionally low, people are keen to avoid renting and the ‘race for space’ continues apace. As ever, prices are also being propped up by a chronic lack of supply.”

Full story: UK housing market makes strongest start to a year since 2005

Britain’s housing market has made its strongest start to the year since 2005, with annual house price growth rising to 11.2%, according to the UK’s biggest building society.

Nationwide said the average price of a home hit £255,556 in January, the sixth consecutive monthly increase. The annual growth rate accelerated 0.8 percentage points from 10.4% the previous month, reaching its highest level since June.

Robert Gardner, Nationwide’s chief economist, said:

“Housing demand has remained robust. Mortgage approvals for house purchase have continued to run slightly above pre-pandemic levels despite the surge in activity in 2021 as a result of the stamp duty holiday, which encouraged buyers to bring forward their transactions to avoid additional tax.

“Indeed, the total number of property transactions in 2021 was the highest since 2007 and around 25% higher than in 2019, before the pandemic struck. At the same time, the stock of homes on estate agents’ books has remained extremely low, which is contributing to the continued robust pace of house price growth.”

Here’s the full story:

Irn-Bru owner lifts prices as costs increase

Britain’s Queen Elizabeth II signing the visitors book during a visit to AG Barr’s factory in Cumbernauld in June 28, 2021.
Britain’s Queen Elizabeth II signing the visitors book during a visit to AG Barr’s factory in Cumbernauld in June 28, 2021. Photograph: Reuters

Irn-Bru owner AG Barr is lifting its prices as it battles rising cost pressures.

In a trading update, AG Barr reports that it is facing inflationary pressures, particularly across packaging and energy linked commodities, and responding with higher prices.

We have initiated several cost control actions to reduce the impact of these rising costs and have adjusted our pricing with customers where appropriate.

With the published rate of inflation in the UK now above 5%, the highest level for 20 years, we will continue to seek opportunities across the coming year to offset the impact on our business.

AG Barr also makes the Rubicon sparkling drinks range, and Funkin cocktail mixers.

It says trading was strong in the year to 30 January 2022, with sales expected to be 17.5% higher than the previous year -- marginally ahead than its revised guidance issued in November.

Irn-Bru was a surprise hit at the Cop26 climate talks three months ago, with US congresswoman Alexandria Ocasio-Cortez posting an Instagram video of herself praising the beverage.

Marc von Grundherr, director of London estate agent Benham and Reeves, says demand is picking up in the capital (after the pandemic encouraged people to move of London):

The London market looks poised to outperform the wider UK over the coming year. We’ve seen a huge uplift in both tenant and homebuyer demand following the pandemic inspired exodus and many have now realised that London is where they want to be, not just where they need to be.

Foreign homebuyers are also returning at quite a rate, many of whom are unphased about rising inflation or the resulting increase in interest rates and this will help rejuvenate the London property market considerably.”

Property experts are agreeing that the market will slow during 2022, after a rapid start to the year:

Jeremy Leaf, north London estate agent, says the market was resilient in January:

’[Nationwide’s survey] It confirms what we have seen on the ground – a resilient market with prices still rising in response to improving but continuing low stock levels.

‘Looking forward, higher interest rates and inflation will inevitably have some impact on the pace of price increases and number of transactions.’

Tomer Aboody, director of property lender MT Finance, says an ‘overflow’ of deals boosted the market in January:

‘A strong start to 2022 with the overflow of deals which didn’t transact in December continues the trend of the extraordinary past 15 months or so, with near continuous growth month-on-month.

‘There’s still huge demand from buyers who are taking advantage of the low interest rate environment and stretching themselves to get their dream home.

‘However, with interest rates expected to increase along with inflation, impacting disposal income and deposits saved by buyers, the market is likely to slow down this year as affordability gets tougher.’

Emma Fildes of property agency Brick Weaver also sees a slowdown later this year:

Updated

Market likely to slow in 2022

While the outlook remains uncertain, it is likely that the housing market will slow this year, adds Nationwide’s chief economist Robert Gardner.

He points out that house price growth has outstripped earnings growth by a wide margin since the pandemic struck and, as a result, houses are less affordable:

“For example, a 10% deposit on a typical first-time buyer home is now equivalent to 56% of total gross annual earnings, a record high. Similarly, a typical mortgage payment as a share of take-home pay is now above the long run average, despite mortgage rates remaining close to alltime lows.

The pressures on household finances will also dampen demand:

“Consumer price inflation reached 5.4% in December, its fastest pace since 1992.This is more than double the Bank of England’s 2% target and inflation is set to rise further in the coming months as the energy price cap is increased.

This rapid rise in inflation has been an important factor denting consumer confidence in recent months, especially how people see their own personal financial situation evolving, although as yet, this has done little to dent housing market activity.

UK consumer confidence index

Plus, higher interest rates could cool the markets -- if it leads to higher mortgages rates, Gardner concludes:

This will further reduce housing affordability if it feeds through to higher mortgage rates, although to date a significant proportion of the rise in longer term interest rates seen in recent months has been absorbed by lenders

Introduction: UK house prices strongest start to a year since 2005

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

UK house prices have begun 2022 with strong gains, as robust demand and a shortage of properties for sale continue to support the market.

Average house prices jumped by 0.8% in January, lender Nationwide reports this morning, which lifts the annual rate of house price inflation to 11.2%, up from 10.4% in December.

It’s the strongest start to the year since 2005, and takes the average house price on Nationwide’s survey to £255,556 mark.

Nationwide house prices
Nationwide house prices Photograph: Nationwide

It’s the sixth consecutive monthly increase in house prices, explains Robert Gardner, Nationwide’s chief economist:

“Housing demand has remained robust. Mortgage approvals for house purchase have continued to run slightly above pre-pandemic levels, despite the surge in activity in 2021 as a result of the stamp duty holiday, which encouraged buyers to bring forward their transactions to avoid additional tax.

“Indeed, the total number of property transactions in 2021 was the highest since 2007 and around 25% higher than in 2019, before the pandemic struck.

“At the same time, the stock of homes on estate agents’ books has remained extremely low, which is contributing to the continued robust pace of house price growth.

UK house transactions
UK house transactions Photograph: Nationwide

Higher borrowing costs might slow the market this year, though, as the cost of living crisis also squeezes household budgets.

The Bank of England is widely expected to raise UK interest rates on Thursday, from 0.25% to 0.5%, after inflation hit its highest levels in almost 30 years.

Also coming up today

Surveys of purchasing managers in the UK, US and eurozone will show how factories were hit by omicron, and the persistent supply chain problems, in January.

European stock markets are on track to open higher, as investors look to put January behind them.

As we blogged last night, the pan-European Stoxx 600 fell almost 5% last month, the worst month since October 2020.

On Wall Street, the US S&P 500 lost 5.3% during January, its weakest performance since March 2020, as worries about US interest rate rises hit tech stocks hard.

2022 has certainly been volatile, with energy stocks surging and technology notable weak:

Markets are adjusting to the Federal Reserve’s phasing out of the massive stimulus provided over the last two years, says Naeem Aslam of Avatrade.

Moving forward, the American economy is expected to expand further, and companies are expected to report solid earnings supported by strong demand and a global economic recovery. Furthermore, the Federal Reserve is likely to continue tapering with extreme caution so that investors are not scared off and a tantrum is avoided.

This perspective was evident in Esther George’s, President of the Kansas City Fed, comments that it is in “no one’s interest to try to upset the economy with unexpected adjustments” and that Fed officials are working hard to keep shifts in its monetary policy “gradual” and less “disruptive”.

The agenda

  • 7am GMT: Nationwide house price index for January
  • 8.55am GMT: German unemployment report for January
  • 9am GMT: Eurozone manufacturing report for January (final reading)
  • 9.30am GMT: UK manufacturing report for January (final reading)
  • 9.30am GMT: US mortgage approvals for January
  • 10am GMT: Eurozone unemployment report for December
  • 1.30pm GMT: Canadian GDP report for November
  • 2.45pm GMT: UK manufacturing report for January (final reading)
  • 3pm GMT: JOLTs Job Openings (DEC)

Updated

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