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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Cost of living crisis hits household confidence; UK trade with Germany falls; FTSE 100 at two-year high – as it happened

United Kingdom Germany United States Huw Pill Bank of England ING LV= Amazon John Menzies (Person) Royal London
Lorries queue for the Port of Dover in Kent, as the Dover TAP is enforced due to the high volume of lorries waiting to cross the Channel.
Lorries queue for the Port of Dover in Kent, as the Dover TAP is enforced due to the high volume of lorries waiting to cross the Channel. Photograph: Gareth Fuller/PA

Closing summary

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

Goodnight. GW

Bank of England boss urged to shadow care worker for a day amid low pay row

One of Britain’s largest trade unions has invited the governor of the Bank of England to work as a care worker for a day to witness how people cope on low pay.

The GMB, which represents about 500,000 full and part-time workers, said Andrew Bailey should see first hand the challenges of making ends meet for people struggling on below average earnings – many of them low-paid women working in the care sector – after the central bank governor called for wage restraint to limit the rise in inflation.

Bailey caused uproar last week when he suggested that workers should help curb inflation by refraining from making wage demands, on the same day the Bank of England announced the biggest fall in disposable income in three decades.

The central bank forecast that inflation, which increased to 5.4% in December, was on course to hit 7% in April while its latest estimates found that earnings were increasing by 4% to 4.5%.

Bailey said interest rates would need to rise further if wages increased in line with inflation, causing unemployment to rise and economic growth to slow.

More here:

Chief economist Huw Pill touched on this issue today, when he said the Bank would act if it became concerned that the jump in energy prices and imported goods was driving up wages or prices:

In an attempt to protect their own real income from the unavoidable impact of higher external prices, the longer that firms try to maintain real profit margins and employees try to maintain real wages, the more likely it is that domestically-generated inflation will achieve its own self-sustaining momentum even as the external impulse to UK inflation recedes.

Danni Hewson, AJ Bell financial analyst, says optimism that the pandemic could be easing, lowered geopolitical tensions and decent company results all lifted markets today:

Tensions in the Ukraine are easing, the UK government is talking about a potential end to Covid isolation and a whole host of companies have delivered their own brand of good news.

From Dunelm’s record first half profits to estimate-beating chicken sales for KFC’s parent company, there has been a remarkable feeling permeating through markets today which has pushed the FTSE 100 to a new post pandemic high.

Results from Disney after the closing Wall Street bell will set the scene for Thursday... as will January’s US inflation data, she adds:

“Of course, tomorrow could be an entirely different story, or it could have a Disney style happy ending. The mouse house reports after the bell tonight and whilst the numbers are expected to be good, particularly from the company’s theme parks, close attention will be paid to subscriber numbers for its streaming service.

Netflix was pummelled after its last update with investors in no mood to cut tech giants any slack. And Disney has certainly been pumping out the content, intent on finding new audiences who wouldn’t normally plump for what it offers. With Amazon winning markets over because of a prime price hike there will be some who wonder whether Disney will start to reign back on its offers and speculating about what will happen to numbers if it does.

FTSE 100 at two-year high

In the City, the FTSE 100 share index has closed at its highest level in over two years.

The blue-chip share index ended 1% higher at 7643, amid a global market rally in Europe, America and Asia-Pacific markets.

The FTSE 100 over the last two years
The FTSE 100 over the last two years Photograph: Refinitiv

Online grocery business Ocado rallied 6%, a day after shedding all its pandemic gains on concerns that the costs of building high-tech warehouses are eating into margins.

Travel and hospitality companies were also among the risers, after Boris Johnson announced plans to abolish the last domestic Covid restrictions in England, including the requirement for people with the virus to self-isolate, in less than two weeks.

IAG, which owns British Airways, gained 4.6% today, with broadcaster ITV up 4.3% and copper producer Antofagasta gaining 3.9%.

The UK-focused FTSE 250 index jumped by 1.8%, with holiday operator TUI rallying 9.7% -- yesterday it reported that UK summer holiday bookings were up a fifth on pre-Covid levels.

Michael Hewson of CMC Markets says:

European markets have seen another strong session today, with the FTSE100 setting a new two year high, while the FTSE250 has also seen strong gains due to some outperformance in companies who are most exposed to the ebb and flow of the UK economy, and the announcement of a possible easing of Covid restrictions in England, at the end of this month.

Travel and leisure have once again been out front with TUI, Wizz Air and easyJet helping to underpin the FTSE250. The Prime Minister’s announcement that Covid isolation in England rules could end at the end of this month has given a leg up to the likes of Whitbread, Cineworld and Kingfisher, while IAG is also higher, as reports circulate it could be forced by Brussels rules to spin off its UK operation British Airways, due to EU ownership rules.

European markets had their best day in two months. Germany’s DAX and France’s CAC both rose by around 1.5%, as investors put aside the worries about inflation, interest rates and Ukraine that hit markets in January.

Bank of England chief economist Huw Pill has doused expectations that the central bank would quickly begin active bond sales from its quantitative-easing program once interest rates hit 1%, Bloomberg’s Phil Aldrick reports:

Addressing the Society of Professional Economists this lumchtime, Pill said:

“1% is not a trigger. It’s a point of consideration.”

More here.

Updated

Bundesbank chief: ECB may need to raise rates in 2022

Germany’s new top central banker has suggested that eurozone interest rates could rise before the end of the year.

Reuters has the story:

The European Central Bank’s German policymakers openly discussed prospects for an interest rate hike on Wednesday, with new Bundesbank chief Joachim Nagel arguing that a move could come this year, as inflation remains uncomfortably high.

The ECB last week walked back on a pledge not to raise rates in 2022 and policymakers are now looking at how best to dismantle unconventional policies that have kept the euro zone afloat for much of the past decade.

Maintaining the Bundesbank’s historically conservative line, Nagel, who took charge of the German central bank in January, warned that acting too late in normalising policy could be especially costly.

“If the (inflation) picture remains unchanged in March, I will be in favour of normalising monetary policy,” Nagel told German newspaper Die Zeit. “The first step is to discontinue the net asset purchases over the course of 2022. Then interest rates could be raised before this year is over.”

ECB board member Isabel Schnabel, also a German, took a more measured view but also argued that a rate hike may be needed to offset the inflation shock.

“Raising rates would not lower energy prices,” Schnabel said in a Twitter Q&A. “But if high current inflation threatens to lead to a de-anchoring of inflation expectations, we may still need to respond, as our mandate is to preserve price stability.”

More here: ECB may need to raise rates in 2022, new Bundesbank chief says

And here are some highlights from Isabel Schnabel’s Q&A, where she outlined the ECB’s strategy:

Updated

Price hike fears as Ofcom softens stance on mobile firm mergers

The UK’s telecoms regulator has dropped its long-held belief that a merger between any of the UK’s big four mobile operators should be blocked at all costs, raising the possibility of a mega merger between Vodafone and Three UK.

Ofcom previously maintained that such a reduction in competition would lead to higher-priced phones and bills for consumers and businesses.

Under the former chief executive Sharon White, Ofcom was an outspoken opponent of Three UK’s attempted £10.25bn takeover of O2, which was blocked by competition regulators six years ago. Ofcom said on Tuesday it had now “clarified its position on mobile consolidation”.

Months before the deal was blocked, White, who is now the chair of the John Lewis Partnership, delivered a scathing speech attacking the deal, saying that a move from four to three main players would “shift the balance of power” in the market.

“Competition is the lifeblood of today’s telecoms market, spurring innovation, better coverage and fair prices,” she said.

“The deal could mean higher prices for consumers and businesses.”

But Ofcom has now softened its stance... Here’s the full story:

Updated

Shipping giant Maersk sees record profit as demand surges

The ‘Mumbai Maersk’ lies surrounded by tugs in the North Sea near the island of Wangerooge, Germany, Thursday, Feb. 3, 2022.
The ‘Mumbai Maersk’ lies surrounded by tugs in the North Sea near the island of Wangerooge, Germany, Thursday, February 3rd, 2022. Photograph: Sina Schuldt/AP

The world’s biggest shipping company has reported record profits, thanks to surging demand from a rebounding global economy.

Denmark’s A.P. Moeller-Maersk says 2021 was its most profitable year yet. It made pre-tax profits of $18.73bn last year, up from $3.3bn in 2020.

Revenues surging 55% to $61.8bn, with an ‘unprecedented’ performance at its Ocean, Logistics & Services and Terminals divisions as they battled supply chain bottlenecks.

It benefitted from the jump in freight rates, as customers battled to get goods shipped around the world due to high demand and global supply chain disruption.

Shareholders profited too, with $3bn of share buy-backs and dividends in 2021.

A.P. Moeller- Maersk also predicted that 2022 would be strong, with the shipping situation expected to return to normal early in the second half of this year.

Søren Skou, CEO of A.P. Moller - Maersk, says:

Exceptional market conditions led to record-high growth and profitability in A.P. Moller - Maersk, however it also led to supply chain disruptions and severe challenges for our customers.

We spent tremendous efforts in mitigating bottlenecks by expanding capacity across Ocean, improving productivity in Terminals and growing our global logistics footprint. We will continue these efforts as we see the current market situation persist into Q2.

At the same time, we see conversations with customers change from procurement-led freight rate discussions to more holistic conversations on how we truly partner to keep supply chains running end-to-end. This clearly validates our strategy.

Updated

The Wall Street sign is pictured at the New York Stock exchange in Manhattan.

Stocks have opened higher on Wall Street, as investors regain their risk appetite after last month’s wobbles.

The Dow Jones industrial average of 30 large US stocks has gained 0.7%, or 271 points, to 35,734. Nike (+2%), Visa (+2%), American Express (+1.5%) and Microsoft (+1.5%) are the top Dow risers.

Both the broader S&P 500 and the tech-focused Nasdaq Composite are both up 1%.

Every sector is higher, led by real estate, materials and firms providing discretionary goods and services to consumers.

Craig Erlam, senior market analyst at OANDA, says confidence is building as investors come to terms with interest rates rising soon.

It’s hard to pinpoint exactly what has changed; whether it’s earnings that are lifting the mood or the soothing tones of central bankers desperately trying to manage expectations. Perhaps it’s simply a case of investors coming to terms with the tightening environment and feeling more comfortable with it.

Whatever the reason, investors certainly appear encouraged by the fact that the falling knife period looks to be in the rear-view mirror and we’re now seeing signs of stabilization. In recent week’s we’ve also seen periods of aggressive selling being bought into which has helped create the impression that the worst is behind us.

Of course, that could change quickly if the inflation outlook worsens, as has repeatedly been the case in recent months. And we won’t have to wait long for the next hurdle on that front, with the US CPI data being keenly anticipated tomorrow.

Rising borrowing costs are hitting demand for mortgages in the US.

Mortgage applications to purchase a home dropped 10% last week, and were 12% lower than a year ago, according to the Mortgage Bankers Association.

Joel Kan, MBA’s associate vice president of economic and industry forecasting, says the increase in borrowing costs is hitting demand.

“Mortgage rates followed the U.S. 10-year yield and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies,

Those higher rates are deterring people from refinancing loans -- the MBA’s Refinance Index decreased 7 percent from the previous week and was 52 percent lower than the same week one year ago.

Low supply of homes is also hurting mortgage take-up.

Huw Pill is also worried that taking unusually large policy steps (such as large interest rate hikes, or cuts) could validate the narrative that the Bank is either slamming its foot on the accelerator, or the brake.

This narrative was fuelled by the (perhaps necessarily) activist responses to the onset of global financial crisis and pandemic. It is not unique to the UK.

But he then explained that there are occasions when aggressive action is needed.

BoE chief economist Huw Pill also says he is “sceptical of efforts” to return interest rates to a pre-defined neutral rate (where borrowing costs are neither stimulating nor restricting the economy).

Given the inevitable conceptual and empirical uncertainty, he says, it risks mis-calibrating monetary policy by picking the wrong value for r*.

Bank of England's Pill backs 'steady handed' approach to rates

The Bank of England’s chief economist says that a ‘steady handed’ approach to interest rates is the best policy, given uncertainty over inflation, wage growth, and the energy crisis.

In a speech titled “Monetary policy with a steady hand”, Huw Pill explain that international energy and goods prices are driving UK headline inflation higher, having “repeatedly surprised to the upside” in the last year.

This has put the Bank’s Monetary Policy Committee in the “current, very uncomfortable position” of predicting inflation will peak over 7% in April, he tells the Society of Professional Economists conference.

Those higher prices are also hitting UK real national income. Should they stabilise, then their impact on inflation will dissipate.

Should they fall slowly in line with futures prices, inflation is forecast to fall below the 2% target by a meaningful margin at the policy-relevant horizon.

But, Pill warns, there is considerable uncertainty:

With the pandemic giving way to geopolitics as the driver of international energy prices, they are unlikely to become easier to forecast.

And on wages, Pill says the Bank now sees underlying wage growth approaching 5% this year, as the labour market continues to tighten.

The BoE’s ‘big call’ is that the stronger momentum in domestic wage and cost growth will ease beyond this year, as headline inflation falls and unemployment rises as energy prices hit incomes and economic demand.

On that basis, Pill says, the easing of domestic inflationary pressures is achieved without the UK falling into recession, cautioning:

But, by nature, it is also a call surrounded by uncertainty.

Pill explains that if inflationary pressures ease, interest rates could stay lower for longer. But if there are signs of energy price driving up wage settlements, the Bank could tighten policy faster.

Under our baseline paths for wages and energy prices, our published scenarios suggest that leaving Bank Rate unchanged at 0.5% indefinitely would – unsurprisingly – leave inflation above our 2% target at the policy-relevant horizon, whereas following the market-implied path to 1.2% by the end of this year would have left inflation somewhat below target.

I leave it to you to draw any implications for where the MPC sees the path of Bank Rate headed. But I would emphasise that these scenarios, by nature, embody the underlying assumptions about energy prices and wage developments that I have discussed.

Since the outlook for wages and energy prices is uncertain as I have emphasised, then the prospective path for Bank Rate is also uncertain. Were we to see evidence of second round effects in wage and cost developments, a tighter policy than otherwise might be required.

Were energy prices to fall steadily in line with futures rather than stabilise as we assume, then – other things equal – more policy accommodation could be maintained.

Given all this uncertainty, Pill argues, he voted for a 25-basis point interest rate rise last Thursday, which raised Bank Rate from 0.25% to 0.5%.

But four of the nine MPC members wanted a steeper hike, to 0.75%, and were only narrowly outvoted.

Pill says there may be occasions when monetary policy actions are needed:

Recent history is littered with them: the global financial crisis and onset of the pandemic are cases in point. I would certainly not wish to rule out changes in Bank Rate of more than the usual 25bp in all circumstances.

And given the inflationary pressures we currently face, I can certainly understand why colleagues on the MPC voted for a 50bp hike last week.

But right now, Pill concludes that “a case can be made for a measured rather than activist approach to policy decisions”.

On the Amazon news, Reuters points out that the Groceries Supply Code of Practice applies to retailers with an annual turnover of more than £1bn in grocery sales.

Amazon does not break out figures for its UK grocery sales, so its designation under the code publicly confirms for the first time that its sales have crossed the 1 billion pound threshold.

The code ensures grocers treat suppliers fairly. It restricts firms from making changes to supply contracts at short notice and also requires retailers to give an appropriate period of notice if they no longer want to use a supplier and provide reasons for ending the contract.

All of Britain’s major supermarket groups, including market leader Tesco, Sainsbury’s, Asda and Morrisons, are subject to the code.

Amazon designated as UK grocery retailer to protect suppliers

The UK’s competition watchdog has announced that industry rules setting out how grocery retailers should treat their suppliers will now apply to Amazon.

The Competition and Markets Authority has designated Amazon as a grocery retailer to protect suppliers, due to its increasing activity in the UK groceries’ sector, through its Amazon Fresh home delivery service and stores, and Fresh & Wild Limited service.

Adam Land, senior director for remedies, business and financial analysis at the CMA, said:

“Households across the UK are increasingly using Amazon to buy food and other essential items. Today’s decision to designate Amazon helps to ensure a level playing field for companies active in the groceries sector as people’s buying habits evolve.

“These rules mean that the thousands of companies supplying Amazon with groceries are now protected from potential unfair business practices.

“We’ll continue to keep a close eye on the sector to make sure all major grocery retailers are bound by the same rules.”

Updated

UK households grow gloomier about financial outlook

British households’ confidence in their financial outlook has fallen to its lowest in eight years, as the cost of living crisis hits.

Polling company YouGov and economic consultancy Cebr have reported that consumer confidence dropped this month to the lowest since last March, as people worry about rising prices, tax increases and their job security.

The index of households’ expectations for their financial situation in 12 months’ time tumbled by 4.5 points to 79.1, the lowest since October 2013.

UK consumer confidence report

The drop in consumer confidence highlights the impact of the rising cost of living on household sentiment, says Sam Miley, senior economist at Cebr:

Away from the headline indicator, consumers’ assessment of their finances over the coming year provides for a particularly stark reading - reaching a near nine-year low. Rising inflation and the planned uplift to National Insurance contributions are just two likely factors behind this weaker outlook.

This sentiment is also mirrored in Cebr’s latest forecasts, with real disposable incomes expected to fall year-on-year and the household savings ratio set to narrow significantly.”

YouGov/CEBR index of consumer confidence

Whether you’re renting or buying, the cost of painting your home will have risen, and it’s probably going to get worse.

Dulux paint maker AkzoNobel increased its decorative paints pricing by 6% last year, and were 10% higher year-on-year in Q4, as it passed on some of the surge in raw materials costs to customers.

AkzoNobel’s decorative paints division’s financial performance
AkzoNobel’s decorative paints division’s financial performance Photograph: AkzoNobel

Prices for Performance Coatings (used on industrial machinery, buildings, boats and aeroplanes) rose 8% in 2021, and by 14% year-on-year in Q4.

AkzoNobel told shareholders that operating income jumped 16% last year, as “Significant price increases and volume increases” helped offset commodity inflation and supply constraints.

But operating income in Q4 was down 16%, as raw material and other variable costs increased by €325m.

It told shareholders that raw material cost inflation and supply constraints are “expected to gradually ease by mid-2022”.

AkzoNobel CEO, Thierry Vanlancker said the company it ‘on track’ to offset rising costs (by raising prices):

“With our full-year 2021 results we delivered a sixth consecutive quarter of revenue growth. Our teams were quick to act with strong pricing in response to around 770 million euros of raw material inflation.

This extraordinary achievement allowed us to deliver a 2021 profit in line with prior year. As we continue to drive forward, we are on track to offset this headwind by Q1 2022.

Averge rents rise towards £1,000 per month

In other property news... the average cost of renting a home in the UK is approaching £1,000 a month, according to new analysis, as rents continue to climb amid soaring demand.

Renters around the UK are now paying £62 more each month than before the pandemic, taking the average monthly rent to £969, according to property website Zoopla.

This means that the average annual rent for people who are agreeing a new let is now £744 higher than it was in March 2020 before Covid.

The rate at which rents are rising reached 8.3% in the final three months of 2021, which is a 13-year high.

The increase in housing costs will put further pressure on households, who are already feeling the squeeze from rising energy bills and wider price rises.

Rising rents will also make life difficult for people who are looking to get on the property ladder, at a time when the price of the average UK home reached a record high of £276,759 in January, which is £24,500 higher than a year earlier, according to Halifax.

Over the past year, rents have risen in every region of the UK, Zoopla found, with the strongest growth of 10.3% seen in London, followed by Northern Ireland (10.2%) and Wales ( 9.8%). The increases were the weakest in Scotland, where they reached 4.8%, and north east England where they rose by 6%.

However, rents in the capital are only £18 a month higher than they were in March 2020, because they fell during the pandemic.

Renters including office workers and students are now returning to the centres of the country’s largest cities - including London, Manchester, Birmingham, Leeds and Edinburgh – after the ‘race for space’ during the pandemic saw many people look to move to commuter areas.

Here’s some reaction:

Barratt lifts house-building forecast

Bricklayers on a Barratt Homes development site last year.
Bricklayers on a Barratt Homes development site last year. Photograph: Jonathan Buckmaster/Daily Express/PA

Housebuilder Barratt plans to build an extra 250 more homes than previously forecast, despite concerns that rising interest rates dampens the housing market.

Barratt told the City it now expects to complete between 18,000 and 18,250 homes in the financial year to 30th June, an increase of 250 on its previous guidance.

Barratt cited its strong order book position, the continued strength in housing demand, and expected further growth in construction activity at building sites, with 14% more houses being built than a year ago.

That would beat the 17,243 homes completed last year (to 30 June 2021), and above pre-pandemic levels.

Total completions in the last six months of 2021 are down 11% year-on-year, with revenues down 10%, due to the surge in activity in the second half of 2020 after the first lockdown lifted.

Barratt is also confident that the market can handle higher interest rates - with the Bank of England having raised Bank Rate twice in the last two months.

It says it is seeing strong demand, with “strong total forward sales” at 30 January 2022 of 15,736 homes, higher than the 14,289 homes on 31 January 2021.

CEO David Thomas told Reuters:

“Affordability for the consumer is in a relatively good place and that is because interest rates have been and continue to be so low,”

“So once we understand that interest rates are rising - and we saw a base rate increase last week ... affordability remains more than historic benchmarks, but we will clearly keep that under review.”

On Monday, Halifax predicted that prices will slow considerably this year, as households are squeezed by rising inflation.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, cautions that demand could soon peak:

Barratt Developments is certainly making hay while the sun shines as first timers rush to get onto the ladder and other buyers trade up for bigger homes, desperate for more space to meet new hybrid work needs. But with indications that house price growth has slowed, there are still concerns this buoyant book of orders will start to thin out, particularly as the cost of living squeeze intensifies and rate rises come in quick succession.

The cheap loan party isn’t expected to last forever, and as homebuyers reassess their spending priorities, house builders could soon be facing a more difficult trajectory. It isn’t immune to higher prices, with build cost inflation expected to reach 6% but it’s expecting to pass on those costs to customers with the overall effect on margins neutral or even positive. How long homebuyers will swallow higher prices is unclear, however the ongoing lack of affordable housing could provide a tailwind of resilience.’’

John Menzies rejects takeover approach

In the City, shares in airport services group John Menzies have jumped by 34%, after it rebuffed a takeover approach from a Kuwait firm.

John Menzies says it has rejected an “unsolicited and highly opportunistic approach” from Kuwait’s Agility Public Warehousing, which valued it at around £469m.

The bid was worth 510p per share, or roughly 50% above Menzies’ closing price last night. Shares have now jumped to 450p, their highest since January 2020, just before Covid-19 hit the global economy.

John Menzies share price
John Menzies share price Photograph: Refinitiv

Menzies started out as a single Edinburgh bookshop in 1833, before opening bookstores at railway stations and on high streets, and running wholesale newspaper and magazine distribution, and later cargo transport.

It is now a ‘pure play’ aviation business, operating ground handling, cargo handling, cargo forwarding and plane fuelling services at over 200 airports in 37 countries.

Having been disrupted by the pandemic, Menzies says it is now “well-positioned” for the recovery in the aviation sector - which it insists isn’t recognised in today’s offer.

Menszies says its “pipeline of opportunities” is full, as it focuses on air cargo services, new fuelling operations and high quality ground handling, targeting emerging markets where margins are typically higher.

Philipp Joeinig, Chairman and CEO of John Menzies plc, said:

“The Board of Menzies has unanimously rejected this unsolicited and highly opportunistic Proposal, which we believe does not reflect Menzies’ true intrinsic business worth or its prospects.

Menzies continues to make good progress with strong performance across a number of service lines, which together with productivity gains, saw the Group to finish last year strongly. This strong performance and momentum in 2021 has continued in 2022 with further contract wins and renewals alongside the continued recovery of global flight volumes.

Updated

LV= and Royal London merger talks end

Merger talks between mutual insurer LV= and Royal London have broken down.

It is the second time within two months that a deal to buy the 178-year-old firm, originally known as Liverpool Victoria, has collapsed.

LV= began discussions with its fellow mutual Royal London at the start of the year, after its members blocked a planned takeover by US private equity firm Bain Capital in December.

However, the company said in a statement to the London Stock Exchange that it had “become clear to LV= that our different mutual models mean such a merger would not be in the best interests of LV= members.”

Seamus Creedon, LV=’s interim chair, thanked Royal London for its engagement, saying LV= looks forward to operating alongside it as part of a “vibrant mutual sector”.

He added:

“The strength of LV=’s business performance over the past 18 months combined with its operational progress has strengthened the board’s belief in, and commitment to, the continuation of our status as an independent mutual.”

LV= had previously rejected an approach from Royal London last year, worth £10m more than Bain’s offer which would have ended LV=’s member-owned status.

That approach was slammed as a “hand grenade” by LV=, as it struggled to persuade members, and outsiders, that the Bain deal made sense.

Barry O’Dwyer, Group Chief Executive of Royal London, says today that it had engaged with LV= because it thought it didn’t have a future as a stand-alone firm.

“Mutuals are owned by their customers and are run for their benefit.

“Our offer to preserve LV=’s mutuality through a merger with Royal London was based on an understanding that LV= did not have a viable future as an independent company.

LV= also announced a boardroom clear out on Monday, following its failed, controversial demutualisation plan.

GSK made £1.4bn from Covid sales ahead of 'landmark' 2022

GlaxoSmithKline made £1.4bn from Covid-related sales last year, mostly from its antibody drug Xevudy, as it unveiled better-than-expected results ahead of what its boss Dame Emma Walmsley describes as a “landmark year”.

Ahead of the spin-off and stock market flotation of its consumer arm this summer, GSK reported total sales of £34bn for 2021, similar to the previous year. The consumer healthcare business contributed £9.6bn, down 4% from 2020. GSK’s annual profit before tax fell to £5.1bn, from £6.4bn in 2020.

In the final quarter of the year, turnover rose 9% to £9.5bn, slightly ahead of analysts’ forecasts, while earnings per share were also better than expected at 25.6p.

Xevudy (sotrovimab), a monoclonal antibody developed by GSK in partnership with Vir Biotechnology, was approved by the UK drugs watchdog in early December. It is designed for people with mild to moderate Covid-19 who are at high risk of developing severe disease, and trials found it cut the likelihood of hospital admission and death by 79% in high-risk adults.

Walmsley said:

“This is going to be a landmark year for GSK, with a step-change in growth expected and multiple research & development catalysts, including milestones on up to seven key late-stage pipeline assets.

2022 is also the year when we demerge our world-leading consumer healthcare business.”

GSK’s vaccines sales dropped 10% to £1.8bn last year, as countries’ normal vaccination programmes were disrupted by the Covid-19 vaccination drive, hitting sales of the drugmaker’s shingles and meningitis jabs.

Oliver Rakau of Oxford Economics flags that net trade probably slowed Germany’s growth in the last quarter of 2021:

Here’s Claus Vistesen of Pantheon Macroeconomics on Germany’s trade data:

Economist Daniel Lacalle shows how Germany’s trade surplus fell in December, with imports (+4.7% month on month) outpacing exports (+0.9%)

ING: ‘Brexit has left its mark on German trade’

Carsten Brzeski of ING says today’s trade data shows that ‘Brexit has left its mark on German trade’:

Looking at export destinations, 2021 clearly marks a structural shift, illustrating current themes including reshoring, slowing of Chinese growth and different ways to deal with the pandemic.

In 2021, the US was the single most important export destination for German exports, accounting for almost 9% of all exports. China comes in at number two but only marginally ahead of France.

The importance of Poland, Hungary and the Czech Republic has increased to unprecedented highs, accounting for a higher share of total German exports than China, Russia and Japan together. Finally, Brexit has left its mark on German trade as the UK dropped out of the five most important trading partners list, with German companies exporting more to Austria than to the UK.

Introduction: UK trade with Germany fell in 2021

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

UK firms have missed out on a rebound in trade with Germany last year, as Brexit frictions and the pandemic continue to weigh on the economy.

New data from the Federal Statistical Office shows that imports from the UK into Germany tumbled by 8.5% during 2021, the first year since the Brexit free trade deal was agreed in late December 2020, to €32.1bn.

But other countries did much better. Total goods imports into Germany surged by 17.1% during the year to €1,202bn, as the easing of lockdown restrictions and vaccine rollouts spurred the global economic recovery last year.

That included a 16.8% rise in imports from Germany’s fellow European Union members, and a 20.8% rise in imports from China last year.

In December alone, German imports from the UK were down 18.2% year-on-year -- as there was a rush of stockpiling in December 2020 as firms prepared for possible Brexit disruption.

The EU introduced checks on goods from Britain entering the bloc as soon as the Brexit deal came into effect, with experts warning that UK firms were losing their competitiveness.

The UK delayed its checks on goods coming in until 2022. But even so, German exports to the UK fell by 2.6% during 2021, to €65.4bn. Total German exports rose by 14% in the year, even as the pandemic continued to cause disruption to global supply chains.

Destatis says:

Compared with the same month last year, exports to the United Kingdom dropped by 7.6% to 5.0 billion euros in December 2021. Imports from the United Kingdom were down 18.2% to 2.6 billion euros.

In contrast, Germany’s exports to the US jumped by 18.0% during 2021, as the recovery in America’s economy spurred demand for industrial supplies, machinery and consumer goods.

This chart shows the details:

German trade data for 2021
German trade data for 2021 Photograph: Destatis

Destatis also reports that overall German exports were up by 0.9% month-on-month in December, with imports rising 4.7% compared with November 2021.

After calendar and seasonal adjustment, exports were 6.8% and imports 23.5% higher than in February 2020, the month before restrictions were imposed due to the Covid-19 pandemic in Germany.

In 2021 as a whole, exports increased by 14.0% and imports by 17.1% compared with the previous year. Exports were 3.6% and imports 8.9% above the level of the pre-Covid year 2019.

Germany’s trade data for 2021
Germany’s trade data for 2021 Photograph: Destatis

This data rather chimes with the message from a group of MPs this morning, that the main impact of Brexit on UK firms had been “increased costs, paperwork and border delays”.

There could be worse to come as new import controls are introduced.

The cross-party Public Accounts Committee (PAC) reported that Brexit red tape has damaged Britain’s trade with the EU. The situation could worsen unless the government works with Brussels to reduce hold-ups at UK ports

German factories have also been hit by the supply chain crisis, so will be hoping the EU’s new multi-billion chip production plan can help them.

The €43bn scheme aims to overcome Europe’s dependency on Asian computer chip makers, as governments and businesses around the world battle shortages that experts believe could persist for much of the year.

We’ll hear from Huw Pill, the Bank of England’s chief economist, later when he speaks at the Society of Professional Economists annual conference, on the “UK Monetary Policy Outlook.”

European markets have open higher, with the FTSE 100 near a two-year high.

Some commodity prices are also under pressure, with aluminium hitting its highest since 2008 on Tuesday.

The agenda

  • 9am GMT: Italian industrial production report for December
  • Noon GMT: US weekly mortgage applications
  • 1.10pm GMT: Bank of England chief economist Huw Pill speech: ‘UK Monetary Policy outlook”
  • 3.30pm GMT: EIA weekly oil inventory figures

Updated

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