Closing summary
Our main story today: UK inflation has risen to a near-30-year high of 5.4%, driven higher by rising prices for food, furniture, clothes and housing costs. This deepens the country’s cost of living crisis, and heaps pressure on the Bank of England to raise interest rates at its next meeting in February, following December’s surprise hike.
Sterling rose 0.8% against the dollar to $1.3837 after the data, and was also supported by the surge in UK bond yields. The two-year gilt yield rose to its highest level since March 2018.
Crude oil prices are up for a fourth day and hit seven-year highs, after a fire on a pipeline from Iraq to Turkey briefly halted oil flows, raising fears about supply. Brent crude touched $89.05 a barrel, its highest level since October 2014 while US light crude climbed as high as $87.08, also the highest since then.
The explosion that set off the fire on the pipeline in the southeastern Turkish province of Kahramanmaras was caused by a falling power pylon, not an attack, a senior security source told Reuters.
European stock markets are trading between 0.2% (Italy) and 1% (France) higher. On Wall Street, US stock indices were boosted by upbeat results from a spate of companies such the consumer giant Procter & Gamble and the banks Bank of America and Morgan Stanley, which wrapped up the bank earnings season.
Our other stories are:
BOE's Bailey: Rising inflation could hit demand and push up unemployment
The Bank of England governor also said that rising inflation could hit demand and push up unemployment, ultimately bringing down price growth.
This is a hard thing to say... but if you get pressure on cost of living, pressure on real earnings, that will tend to restrain demand in the economy... and that could lead to an output gap opening up, and it could eventually of course lead to higher unemployment and that would bring inflation down.
I don’t want to suggest that... were we to consider it necessary, we don’t have to take any action in terms of the Bank of England’s action on interest rates. We would obviously judge that ourselves. But there is another channel there which would weaken demand in the economy.
Bank of England governor Andrew Bailey has told MPs on the parliamentary Treasury committee that the central bank’s regional agents are picking up some signs of pay rises picking up because of rising inflation.
They tell me, at the moment, they are beginning to see some evidence of this.
However, official data for November showed that pay increases were not keeping up with inflation at that time, as we reported yesterday.
Bailey also said that the Bank’s policymakers can and will do everything they can to control inflation.
Updated
Inflation in Canada has also picked up, rising to 4.8% in December from 4.7% in November.
Over here, Clea Skopeliti, a freelance reporter, has spoken to people about how they are coping with rocketing food prices and energy bills.
There are some heart-breaking accounts. Primary school teacher Kate Locke from Reading, a single parent with a teenage son, is really struggling and says she is “not getting through the month”. They use hot-water bottles in the evening to avoid putting on the heating (despite freezing temperatures).
The main stock markets in Europe are all pushing higher and crude oil prices are 0.6% (Brent crude) to 0.7% (US light crude) ahead.
- UK’s FTSE 100 index up 38 points, or 0.5%, at 7,601
- Germany’s Dax up 0.6% at 15,869
- France’s CAC up 0.8% at 7,192
- Italy’s FTSE MiB up 0.1% at 27,521
Prime minister Boris Johnson plans to fight on, according to his press secretary. Asked if Johnson would fight any no-confidence motion brought against him by his Conservative lawmakers, the press secretary told reporters:
Yes... Our focus is very clear in terms of delivering the ambitious agenda that we have set out and [were] elect on on in 2019 and we want to continue to work together as Conservatives to deliver this.
The press secretary said Johnson wants to fight the next general election.
One of his Tory MPs, Christian Wakeford, has defected to Labour. The Tory grandee David Davis told Johnson: “In the name of God, go,” during an often chaotic prime minister’s questions overshadowed by intense doubt about Johnson’s future.
After a fierce set of exchanges between Johnson and Labour leader Keir Starmer, Davis rose to tell Johnson that he had spent weeks defending him from “angry constituents”, but that repeated reports about lockdown-breaching parties were too much. You can read more on our politics live blog.
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KPMG has been fined £3m for failures during its audit of the Bargain Booze owner Conviviality and severely reprimanded in the latest blow to its reputation, reports Jasper Jolly.
The accounting regulator, the Financial Reporting Council (FRC), found “a serious lack of competence” in KPMG’s 2017 audit of the company, which collapsed within nine months of the accounts being signed off. The initial fine was £4.3m, but this was reduced because the firm admitted the failings.
The KPMG partner in charge of the audit, Nicola Quayle, was also fined £110,000 and given a severe reprimand. Quayle, who previously led KPMG’s Manchester office and sat on its UK board, will pay £80,850, after receiving a discount for admitting the failures.
UK watchdog to curb marketing of crypto investments
Britain’s financial watchdog plans to clamp down on the marketing of crypto assets (such as Bitcoin) and other high-risk investments, amid a boom in crypto ads and endorsement from celebrities.
The changes would strengthen risk warnings on ads and ban incentives to invest, such as new joiner or refer-a-friend bonuses, the Financial Conduct Authority said.
We are concerned that too many consumers are just ‘clicking through’ and accessing high-risk investments without understanding the risks involved.
My colleague Rob Davies reported last week that cryptocurrency firms bombarded Londoners with a record number of adverts on public transport during 2021, fuelling calls for a ban to prevent people being lured into risky investments.
Sony’s market value plunged by $20bn in its biggest share price slump since the global financial crisis of 2008, after rival Microsoft announced a record-breaking deal to buy Call of Duty publisher Activision Blizzard and take the console wars into the metaverse, writes our media business correspondent Mark Sweney.
Shares in the Japanese conglomerate closed down 13% on Wednesday as investors reacted to the possibility that Microsoft’s $70bn bid for Activision Blizzard, the largest deal it has ever struck and biggest ever in the gaming and tech sectors, could result in global hit games titles being pulled from its Playstation games console and subscription service and offered exclusively on its rival Xbox and subscription service.
The news of the blockbuster deal sparked a wave of investor interest in further consolidation with shares in FIFA football franchise publisher Electronic Arts and Take-Two Interactive, maker of games including Grand Theft Auto, rising. French publisher Ubisoft, which makes Assassins Creed, rose almost 12% while in Japan Capcom and Square Enix rose by 3.5%.
“Sony’s response will be one to watch, of course,” said Clay Griffin, analyst at MoffettNathanson. “But we question its ability to go toe-to-toe with Microsoft financially. We doubt Sony could digest something of the scale of Electronic Arts or Take Two.”
Microsoft deal wipes $20bn off Sony's market value
Microsoft’s $69bn deal to buy the games publisher Activision Blizzard, which makes mega franchises Call of Duty, World of Warcraft and Candy Crush, has wiped $20bn off rival Sony’s market value. Bloomberg News writes:
The blockbuster acquisition escalates Microsoft’s spending spree to secure intellectual property assets for its Xbox Game Pass service, wiping $20 billion off Sony’s valuation in a day. The push to attract paying subscribers with an overwhelming portfolio of games challenges Sony’s traditional console business model that relies on high-profile exclusive titles and hardware sales. Games and network services account for about 30% of Sony revenue.
Lidl’s 900th store in Britain will open its doors for the first time tomorrow.
Located near Liverpool city centre, it is one of six stores opening in January, which will together create almost 250 new jobs. The German discount chain is also opening two shops in London as well as outlets in Shipley, Merry Hill and Newcastle.
Lidl has opened 50 new stores in the last 12 months and its targeting 1,100 in the UK by the end of 2025. It is investing £1.3bn in its store expansion in 2021 and 2022.
Back to the main news of the day, the jump in UK inflation to a near-30-year high of 5.4%. Here is some analysis from our economics editor Larry Elliott:
Inflation was supposed to be yesterday’s problem. This time last year, the government’s preferred measure of the annual increase in the cost of living was running at less than 1%. Now it stands at 5.4% – the highest in almost 30 years – and it has not peaked yet.
With the lagged impact of the supply-chain bottlenecks of last autumn feeding through into prices in the shops and a likely 50% jump in domestic energy bills to come, inflation will certainly exceed 6% in April and may be closer to 7%.
Clearly, the data released by the Office for National Statistics will concern the Bank of England, which is mandated to hit the government’s 2% inflation target and has continually underestimated price pressure over the past year.
The Bank’s monetary policy committee will next meet in early February – and with the cost of food, household goods, eating out, staying in hotels and clothing and footwear all pushing inflation higher last month – the chances of an increase in borrowing costs from 0.25% to 0.5% have increased.
Updated
GSK's research chief Hal Barron jumps ship
In a big blow to Britain’s second-biggest drugmaker GSK, its highly regarded chief scientific officer Hal Barron is jumping ship, to lead an anti-ageing Silicon Valley start-up in August.
Barron, who was one of GSK chief executive Emma Walmsley’s key hires in late 2017, will be replaced by Tony Wood as GSK’s CSO on 1 August. Barron will join the biotech Altos Labs, based in the San Francisco bay area, which is reportedly backed by billionaires including Amazon founder Jeff Bezos. The 60-year-old veteran of Genentech and Roche will stay on GSK’s board, however.
Walmsley said:
We are delighted to appoint Tony as our next CSO. He is an outstanding scientist who is highly respected inside and outside GSK. Tony has been a key partner to Hal in delivering our R&D approach, and with his experience and expertise across science, data and new technologies, he is perfectly placed to build on Hal’s outstanding progress and to deliver value from our pipeline. Hal’s appointment to Altos Labs is a unique opportunity for him and we are pleased that GSK will continue to benefit from his expertise at the Board and in support of R&D.
Barron said:
Tony will be an outstanding Chief Scientific Officer for GSK. I have worked closely with him for several years. I know him as a person and scientist of the highest quality. In the last four years we have significantly improved the quality and strength of the pipeline and our overall R&D productivity, delivering 13 major product approvals and more than doubling the number of assets in Phase III/registration to 23. GSK now has a pipeline of 21 vaccines and 42 medicines.
Huge blow for GSK as its highly respected R&D chief leaves to run an anti-aging biotech backed by Jeff Bezos. GSK is spinning off consumer healthcare in oder to raise more money to invest in its drug pipeline, which has underperformed in recent years. Bad timing.
— Ben Wright (@_BenWright_) January 19, 2022
GSK is in the middle of splitting itself apart, with a London stock market flotation for its consumer health venture planned for the summer. At the weekend, it said it had rejected three takeover bids from the consumer giant Unilever for the business, the latest worth £50bn. The drugmaker has been under pressure from the activist investor Elliott Management to explore a sale of consumer health. Here is our latest story on the saga.
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Mark Harris, chief executive of mortgage broker SPF Private Clients, said:
There is further speculation that the Bank of England will raise interest rates by 0.5% at its February meeting in order to counter rising inflation, and it remains to be seen what impact this will have on buyer confidence.
Despite the global pandemic, the housing market was able to thrive last year and there are still those who have not yet made their purchase. Squeezed affordability would be an issue, preventing first-time buyers in particular from getting on the ladder, but the Bank will be mindful that as we come out of a pandemic, a succession of significant rate increases could be extremely damaging to the wider economy.
Low mortgage rates have been one of the contributing factors to the housing boom and although some lenders are tweaking mortgage rates upwards on the back of higher money market rates, pricing remains competitive.
Phillip Stevens, director of the Richmond estate agency Antony Roberts, thinks that the December rate hike from the Bank of England has not dented buyers’ confidence so far:
It was business as usual in November as prices rose again following October’s dip which came about following the end of the stamp duty holiday. There is plenty of evidence that buyer demand remains strong, especially for houses, and with relatively little stock available it is a house seller’s market.
The interest rate rise does not appear to have dented buyers’ confidence thus far, nor their ability to purchase property, but with inflation at a 30-year high that could change as it may well be the first hike of many. Those wanting to make their move will be keen to do so sooner rather than later but whether they can will depend on what stock launches onto the market this spring.
UK house prices rise 10% in November
In other inflation news, UK house prices rose 10% in November from a year earlier, according to the Office for National Statistics. This compares with an annual rate of 9.8% in October.
House price inflation peaked at 13.5% in June, the highest in more than 15 ears, shortly before the government began to phase out a tax break on purchases.
UK average house prices increased by 10% in the year to November 2021.
— Office for National Statistics (ONS) (@ONS) January 19, 2022
This was up from 9.8% in October 2021 https://t.co/XYiRgkBxr3 pic.twitter.com/4t8oX05pQi
Updated
Wetherspoon boss attacks No 10 ‘hypocrisy’ as sales crash
The pub chain JD Wetherspoon has criticised the government’s “hypocrisy” for holding parties at 10 Downing Street while restrictions forced pub sales to crash, reports my colleague Jasper Jolly.
Wetherspoon also said the latest plan B restrictions brought in at the start of the Omicron wave of infections in December had depressed sales over the crucial festive period in the hospitality sector for a second year running.
The pub chain, run by chairman and founder Tim Martin, directed its ire at the government over “partygate”.
Wetherspoon said “there would have been a number of advantages for the nation” if pubs had been open on 20 May 2020, the date on which the embattled prime minister attended a “bring your own booze” party in the garden of No 10.
Burberry lifts profit outlook
The British luxury brand Burberry has put out a strong trading update. Our retail correspondent Sarah Butler reports:
Burberry is forecasting that full-year profits will grow 35% compared to last year, as strong sales of its luxury clothing and bags in Asia and the US drive its trading rebound from the pandemic.
The British luxury brand said that full price sales were up 26% compared to pre-pandemic levels in the three months to 25 December, compared to 10% growth in the previous quarter, as it sold more full-price items including Burberry trainers, raincoats and bags.
The company said it now expected to increase full year profits by 35% year-on-year to about £500m, up from City analysts’ previous expectation of just over £470m.
Burberry credited the strong profits growth to designer Ricardo Tisci’s products attracting younger shoppers.
UK stock markets have shrugged off the jump in inflation. The FTSE 100 and FTSE 250 indices have barely budged on the news.
Russ Mould, investment director at the stockbroker AJ Bell, said:
Ongoing weakness among tech-related stocks was offset by strength in housebuilders, retail and oil producers in the FTSE 100. Brent Crude continues to charge ahead with a 0.4% gain to $87.84 per barrel, stoking speculation that it could soon return to $100 per barrel amid supply constraints and robust demand.
IEA: Oil supply to overtake demand; Omicron impact muted
Global oil supply will soon overtake demand as some producers are set to pump crude at or above record highs, the International Energy Agency predicted in its monthly report.
It also said that the rapid spread of the Omicron Covid-19 variant was having a limited impact on countries’ demand for oil.
This time around, the surge is having a more muted impact on oil use.
The steady rise in supply could see a significant surplus materialise in the first quarter of 2022 and going forward.
The US, Canada and Brazil are expected to pump at all-time highs this year while Saudi Arabia and Russia could also break their output records.
The energy watchdog also lifted its oil demand estimate for 2022 by 200,000 barrels per day. It warned that with commercial oil and fuel stocks in OECD countries at their lowest levels in seven years, any reductions in supply could inject volatility into the oil market.
Crude oil prices are pushing higher this morning, with Brent crude, the global benchmark, up 59 cents at $88.10 a barrel while US light crude is 85 cents higher at $86.23 a barrel.
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On the stock markets, the FTSE 100 index and Germany’s Dax are barely changed. France’s CAC is 0.4% ahead while Italy’s FTSE MiB has fallen 0.7%.
Investec analyst Sandra Horsfield has looked at the impact of the supply chain crisis and soaring energy prices on inflation.
Undoubtedly some of the strength in goods prices will have reflected ongoing supply chain disruptions. There are some signs that these could be topping out at the moment, but at elevated levels. Over the course of this year, we would expect some clearer easing, helping to contain inflation again. But for now that remains elusive. Indeed, it is almost a given that inflation will rise further come April, when the next change in Ofgem’s utility price cap will take place.
Calculations by our utilities analyst that mathematically take into account how wholesale market prices have evolved, suggest a rise in the dual-fuel utility cap of 49% would be warranted. We estimate that would result in a boost to the inflation rate of 1.5%pts relative to keeping the cap unchanged.
In practice, however, it seems politically inconceivable that a rise in utility prices of this magnitude will be sanctioned. We expect the government to take a range of mitigating measures to limit the increase in the CPI inflation rate, and additionally to provide extra help for low-income households that stand to be particularly affected. The exact mechanism and size of the offset are, as yet unclear.
Pressure builds for February rate hike from Bank of England
The pressure is building for another rate rise from the Bank of England in February, as several economists have said this morning.
Melanie Baker, senior economist at the fund manager Royal London Asset Management said:
Many of the sources of rising inflation could still be described as transitory, but with inflation surprising on the upside by so much, with core inflation higher and at such a high level, worries about inflation expectations are also likely to build.
UK inflation is expected to rise sharply with another jump in energy bills expected in April when Ofgem reset the energy price cap. In the meantime, prospects of higher interest rates, high rates of inflation and pay growth that is not keeping pace means the financial situation of many households will be worsening. The chances of a strong year for real consumer spending are dimming further.
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The Unison union, which represents public sector workers, has also weighed in. Its general secretary Christina McAnea said:
The soaring cost of living means growing anxiety for low-income families. Employees able to switch jobs will be intensifying their new-year searches for better-paid work. This is terrible news for our public services.
Health and care services, already thousands of workers short, are likely to be the biggest losers. Staff are likely to jump ship for more lucrative, less stressful work, where there’s also no requirement to be Covid jabbed.
The figures make a mockery of the 1.75% pay offer for school and council staff. The government must boost the money available so wages there can keep up with rocketing prices too.
The TUC, which is made up of 48 member unions, is calling on the government to come up with a plan to tackle the UK’s cost of living crisis.
TUC general Secretary Frances O’Grady said:
Families are facing a double hit from high inflation and slowing wage growth. They need more help from government.
The chancellor must come forward with a plan to tackle the cost-of-living crisis. Working people need stronger rights to bargain for fair pay increases. And families need more help with rising bills through universal credit.
Prem Sikka, emeritus professor of accounting, tweets:
UK inflation rate hits 5.4%, more to come. Wages not keeping pace. Savers get around 1% - savings destroyed. State pension to rise 3.1% in April. Winter Fuel Payment unchanged since 2011. Universal Credit cut. Tax & NIC hikes coming.Hardship awaits millions. Govt doing nothing.
— Prem Sikka (@premnsikka) January 19, 2022
The chancellor Rishi Sunak’s response to higher inflation is:
I understand the pressures people are facing with the cost of living, and we will continue to listen to people’s concerns as we have done throughout the pandemic.
We’re providing support worth around £12bn this financial year and next to help families with the cost of living. We’re cutting the Universal Credit taper to make sure work pays, freezing alcohol and fuel duties to keep costs down, and providing targeted support to help households with their energy bills.
Paul Dales, chief UK economist at Capital Economics, noted:
After rising from 5.1% in November to 5.4% in December, CPI inflation is now further above the Bank of England’s target than at any point since the UK first adopted an inflation target in October 1992. What’s more, our forecast is that CPI inflation will shoot up to just above 7.0% in April.
- 0.2 percentage points (ppts) of the 0.3ppt rise in overall inflation came from the rise in food price inflation from 2.4% to a nine-year high of 4.5%. The previous gains in agricultural commodity prices suggest that prices on the supermarket shelves will soon rise further, perhaps pushing up food price inflation to 5.0%.
- Furniture/household equipment inflation also added 0.1ppt. Strong demand driven by all the prior Covid-19 lockdowns and problems sourcing products from Asia resulted in price inflation rising from 6.1% to 7.3%, which is the highest rate since this series began in 1989.
- Hotels inflation added another 0.1ppt as a smaller fall in prices this December than last December resulted in inflation rising from 8.3% to 15.5%. That’s the highest rate since this series began in 1997. Admittedly, some of the rise in hotels inflation is probably artificial as prices were imputed during last December’s lockdown. But make no mistake, the bulk of the rise in overall inflation is real.
Core inflation (which excludes food, energy, alcohol and tobacco) rose from 4.0% to 4.2%. That’s the highest rate since July 1992.
Dales thinks inflation will stay above 4% for all of this year and will remain above the 2% target until April 2023.
That’s why we think the Bank will raise interest rates faster than most expect this year, from 0.25% to 1.25%, with the next hike to 0.50% coming on 3rd February.
Updated
Hannah Audino, economist at PwC UK, said high inflation is one of the biggest risks to the UK economic recovery this year.
Intensifying cost of living pressures, combined with relatively positive GDP and labour market data this month, make it more likely that the Bank of England will consider another modest rise in interest rates in their next MPC meeting in February.
However, given it takes around 12-18 months for the full impact of an increase in rates to be realised in the economy, inflation is expected to continue to rise in the short-term. This will provide no respite to households being squeezed by rising prices and falling real wages.
Further challenges lay ahead in the next quarter, as the rise in the energy price cap and the reversal of VAT cuts in hospitality and tourism create the perfect storm for higher consumer prices. High inflation is one of the biggest risks to the UK’s economic recovery this year.
Updated
What has gone up in price?
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, has taken a closer look at the things that have gone up in price.
Food and non-alcoholic drink prices made a much bigger contribution to inflation than we’re used to – with prices rising 5.4%. Within our trolleys there were some eye-watering rises, including margarine up 27.3% in a year, oils and fats 13.1%, sauces 11.6%, lamb 8.5%, low fat milk 8.2% and crisps 9%. When these essentials rise in price, it makes it far more difficult for us to cut costs. Once we’ve traded down brands or to a discounter, it’s a far more dramatic change to have to stop buying milk and margarine to cut costs.
Clothes prices bucked the usual December trend and actually got more expensive during the month. We typically see them drop between November and December in the pre-Christmas sales, as shops try to clear the shelves of partywear. However, this year prices rose, as stores tried to capitalise on the return of Christmas parties and celebrations. Clothes prices are up 4.5% in a year, and children’s clothes are up 5.5%.
Then there are a host of things that we don’t buy regularly, but if we need to buy them, we’re in for a nasty shock. Second-hand cars are up 28.6% in a year. Demand has been outstripping supply, leading to some eye-watering rises. Someone who bought a second-hand car a year ago is likely to find it’s worth more now than when they bought it.
Home improvements, including maintenance and new furniture continued to rocket in price too. as a result of a home improvement boom from more people spending more time at home, and ongoing supply problems. Materials for home maintenance are now 13.9% more expensive than a year ago, while home furnishings are up 12.5%.
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Here’s more reaction to the jump in UK inflation. Debapratim De, senior economist at Deloitte, said:
Inflation hit its highest level in 30 years in December. But unlike in the early 1990s, this inflationary streak is largely driven by surging commodities and goods prices - a consequence of pandemic-related shifts in demand and supply.
Prices for services are rising at a much slower pace, indicating relatively weaker domestic price pressures. This rapid rise in the cost of living seems more likely to squeeze real earnings and consumer spending power than trigger a wage-price spiral.
Here is our full story on inflation.
Britain’s cost of living crisis worsened in December after inflation jumped to 5.4% – its highest level in almost 30 years – driven by the higher cost of clothes, food and footwear, writes Phillip Inman on the economics desk.
Heaping further pressure on Bank of England policymakers to push up interest rates when they meet next month, the prices of furniture and eating out also increased as shortages of staff and hold-ups at UK ports forced up the cost of imports.
The Bank of England expects the consumer prices index (CPI) to rise to 6% by April while some analysts have forecast it could hit 7% unless the government decides to pump billions of pounds into the energy sector to cap spiralling heating costs.
James Smith, developed markets economist at ING, is predicting that inflation will peak at 6.5% in April when household energy bills are set to rise by 50%, and end the year at 4% before falling next year.
Inflation has surprised higher (again) and that’s only likely to increase the temptation for Bank of England policymakers to hike rates for a second consecutive meeting this February. But with inflation rates set to plunge in 2023, and the prospects of a severe wage-price spiral looking less likely, subsequent moves are likely to be more gradual.
We’re now getting closer to the inflation peak, which we expect to be roughly 6.5% in April. That’s when the next increase in the household energy cap is due, and the latest futures prices suggest we’re looking at a 50% increase, followed perhaps by another (much smaller) increase in October. That means the electricity costs alone will be adding over 2 percentage points to the headline inflation rate for most of 2022.
But part of the reason why the peak is set to come in April and not later, is that many of the items affected by supply chain issues will see inflation rates slow. While the disruption appears far from over, many of the goods affected – including furniture and used cars – started experiencing sharp prices from last spring. It’s unlikely that pace will be replicated at the same time this year, reducing pressure on the annual comparison.
Given that headline CPI is likely to plunge in 2023, pretty much regardless of what happens to energy and used car prices over coming months, there are questions as to how worried the Bank should really be about the current levels of inflation. That’s why we think wage growth will assume higher priority in deciding how far to increase Bank rate this year.
Separate figures out yesterday showed that pay rises have failed to keep up with inflation.
Pay for workers in Britain has fallen in real terms for the first time in more than a year, despite signs that employers shrugged off concerns over the Omicron coronavirus variant to continue hiring in December.
Average wages, after taking account of inflation, dropped in November for the first time since July 2020 amid growing concerns over the hit to living standards this year from high inflation and surging energy bills.
Rob Holdsworth from the Resolution Foundation, a respected think tank, tweeted yesterday:
Oh real wage squeeze, I did not expect you back again so soon. Some cohorts have gone their entire working lives without a period of sustained falling real wages. Workers in their early 30s have experienced three of these squeezes already in their short careers.
— Rob Holdsworth (@robholdsworth) January 18, 2022
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UK inflation surprises with jump to the highest rate in 30 yearshttps://t.co/pB4595lHUo pic.twitter.com/Ev59aaB52m
— Zoe Schneeweiss (@ZSchneeweiss) January 19, 2022
@ONS data confirms that inflation ended 2021 on a significant upward trend.
— Suren Thiru (@Suren_Thiru) January 19, 2022
UK #inflation rose to 5.4% in Dec-21, highest since March 1992.
Increase largely reflected rising food prices & higher clothing & furniture costs.
Inflation up 0.5 m/m in Dec. pic.twitter.com/jjKojay69q
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, has brought forward his forecast for the next interest rate hike to February, from March, following the inflation figures.
Inflation rates for four key components likely will rise further over the coming months, culminating in the headline rate probably peaking slightly above 6% in April.
First, clothing inflation, which increased to 4.2% in December, from 3.5% in November, likely will rise further as the anniversary of the Q1 2021 lockdown is reached. Second, December’s 8.7% rate of core output price inflation—the highest since at least 1996, when consistent records begin—points to scope for core goods inflation to step up from December’s 5.2% rate.
Third, the surge in wholesale energy prices suggests that Ofgem will increase its default tariff price cap by around 43% in April, resulting in a 1pp leap in the contribution of electricity and natural gas prices to the headline rate. And fourth, services inflation will rise further in April, when the rate of VAT paid by hospitality and tourism business will return to 20%, from 12.5% currently.
Nonetheless, we continue to expect CPI inflation to fall back swiftly after April and ultimately to undershoot the 2% target in 2023.
Introduction: UK inflation jumps to 5.4%, highest since 1992
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Inflation in the UK has jumped to the highest annual rate in 30 years.
The consumer prices index rose to 5.4% in the year to December, up from 5.1% in November, according to the Office for National Statistics. Economists had forecast an uptick to 5.2%. The last time inflation was higher was in March 1992, when it was 7.1%.
Price rises in food and non-alcoholic beverages, furniture and household goods, clothing and housing and household services, due to surging gas and electricity prices, pushed up inflation. In food, bread and cereals, meat, and vegetables such as potatoes went up in price.
Inflation is now way above the Bank of England’s 2% target. The central bank has forecast a rise to 6% this spring, and is expected to raise interest rates again after a surprise hike in December. Energy bills are likely to soar further in April when the regulator lifts the energy price cap.
Including housing costs, the consumer prices index rose 4.8%, up from 4.6% in November.
Petrol prices were unchanged from November, the highest recorded average price at 148.8p per litre, compared with 114.1p a year earlier.
The Consumer Prices Index including owner occupiers’ housing costs grew 4.8% in the year to December 2021.
— Office for National Statistics (ONS) (@ONS) January 19, 2022
This is up from the 4.6% growth in year to November 2021 https://t.co/sejqcgfnoR
In Germany, inflation rose to 5.3% in December from 5.2% in November, according to official figures, in line with expectations. Over 2021 as a whole, consumer picks rose by 3.1% compared with 2020.
Asian stocks fell, with Japan’s Nikkei tumbling 2.8% and Hong Kong’s Hang Seng and the Shanghai composite indices both down 0.4%.
China’s cyberspace regulator has drafted new guidelines that will require the country’s internet companies to obtain its approval before undertaking any investments or fundraisings, Reuters reported, citing sources.
The proposed rules from the Cyberspace Administration of China will apply to any platform company with more than 100m users, or with more than 10bn yuan in revenue, they said.
The Agenda
- World Economic Forum Annual Meeting
- 9am GMT: IEA Oil market report
- 1.30pm GMT: US housing starts for December
- 1.30pm GMT: Canada inflation for December (forecast: 4.8%)
- 2.15pm GMT: Bank of England governor Andrew Bailey testifies to Treasury committee
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