Inflationary
pressures mount
Official statistics
show the UK headline rate of inflation now stands at a 10-year high, with
surveys pointing to further upward pressure as firms continue to report rapidly-rising
cost burdens.
Data
released last month by the Office for National Statistics (ONS) revealed that
the Consumer Prices Index (CPI) 12-month rate – which compares prices in the
current month with the same period a year earlier – rose to 4.2% in October.
This was above all predictions in a Reuters poll of economists and represents a
considerable jump from September’s rate of 3.1%.
The
rise was largely driven by higher household energy bills following the lifting
of the regulatory price cap on 1 October, with gas prices paid by consumers up
28.1% and electricity up 18.8% in the year to October. ONS said price rises
were evident across the board with the cost of petrol, second-hand cars,
furniture and household goods, hotel stays and eating out all increasing
noticeably.
Some
of the current increase in the rate of inflation is inevitably due to weak
price levels witnessed in October last year when the pandemic was dragging down
economic activity. Analysts do expect to see inflation ease somewhat next year
as these factors begin to drop out of the data.
Survey
evidence, though, suggests there are further inflationary pressures in the
pipeline. Preliminary data from November’s IHS Markit/CIPS Composite Purchasing
Managers’ Index, for instance, revealed record cost pressures, with input price
inflation ‘rising at the fastest rate since the index began in 1998’,
fuelled by ‘higher wages and a spike in prices paid for fuel, energy and raw
materials.’
November’s
Monthly Industrial Trends Survey published by the Confederation of British
Industry (CBI) also highlighted the current inflationary pressures; output
price expectations among manufacturers climbed to the highest level since May
1977.
Rate rise speculation
intensifies
The Chief Economist
at the Bank of England (BoE) has given a clear hint that interest rates are set
to rise soon, although the emergence of the Omicron variant has cast some doubt
over the exact timing.
At
a meeting ending on 4 November, the BoE’s Monetary Policy Committee (MPC) voted
to leave the Bank Rate unchanged at its historic low level of 0.1%.
Policymakers, however, were split on the decision, with two of the nine-member
committee voting for an immediate hike to 0.25%.
Bank
Governor Andrew Bailey described the decision as a “very close call.”
Mr Bailey went on to say that the MPC had “spent many hours”
pondering its decision and did not rule out a rate increase when the committee
next convenes in mid-December. The Governor was, though, at pains to stress
that rates were unlikely to rise sharply, adding “for the foreseeable
future, we’re in a world of low interest rates.”
Since
the last meeting, a number of policymakers have indicated a growing willingness
to act in order to counter above-target inflation, with the clearest hint to
date coming from BoE Chief Economist Huw Pill. Speaking at a CBI conference on
26 November, Mr Pill suggested the conditions now existed for him to vote for
higher rates and indicated that he was minded to do so soon.
Mr
Pill said, “The ground has now been prepared for policy action. Given where
we stand in terms of data and analysis, I view the likely direction of travel
for monetary policy from here as pretty clear.” The Chief Economist,
however, also noted that the Omicron strain could throw a potential spanner in
the works and stressed there was no guarantee the MPC would sanction a rate
hike when its next meeting concludes on 16 December.
Markets
(Data compiled by TOMD)
Discovery
of the Omicron variant impacted markets as investors considered the
risk to the global economic recovery. After initial market falls, stocks
largely regained their composure on Monday 29 November, as indices recovered
some of the losses seen during the previous trading session.
On
the last day of the month however, concerns intensified over the efficacy of
current vaccines against the new strain; markets felt the impact of this
uncertainty. In the UK, buoyed by miners, the FTSE 100 managed to pull back
from steep losses, when it pushed below the 7,000-point mark for the first time
in nearly two months. The index closed the month down 2.46%, to end November on
7,059.45. The mid cap FTSE 250 index closed on 22,519.72, a monthly loss of
2.54% and the Junior AIM index closed on 1,187.56, a loss of 2.91% in the
month. The Euro Stoxx 50 fell 4.41% in
the month to close on 4,063.06. In
Japan, the Nikkei 225 recorded a
loss of 3.71% in the month, to close on 27,821.76.
US
stocks fell at month end after Federal Reserve Chairman Jerome Powell remarked
that inflation can no longer be considered transitory. He also signalled an
earlier-than-expected end to monthly bond purchases, potentially opening the
door to interest rate increases. The Dow closed the month down 3.73%, the
NASDAQ gained 0.25%.
Concerns
that the new variant could slow global economic growth sent oil prices lower.
The Organisation of the Petroleum Exporting Countries and its allies (OPEC+)
postponed technical meetings to early December, giving themselves more time to
assess the impact of the variant on oil demand and prices. Brent Crude is
currently trading at around $68 per barrel, a loss of over 18% on the month.
Gold is currently trading at around $1,798 a troy ounce, a small gain of around
1.6% over the month.
On
the foreign exchanges, sterling closed the month at $1.32 against the US
dollar. The euro closed at €1.17 against sterling and at $1.13 against the US
dollar.
| Index | Value (30/11/21) | Arrow up or down | Movement since 29/10/21 |
| FTSE 100 | 7,059.45 | down | 2.46% |
| FTSE 250 | 22,519.72 | down | 2.54% |
| FTSE AIM | 1,187.56 | down | 2.91% |
| Euro Stoxx 50 | 4,063.06 | down | 4.41% |
| NASDAQ Composite | 15,537.69 | up | 0.25% |
| Dow Jones | 34,483.72 | down | 3.73% |
| Nikkei 225 | 27,821.76 | down | 3.71% |
Jobs
market withstands furlough end
The latest set of employment
statistics suggests the demise of furlough has done little to dent the strong
labour market recovery that has been evident over recent months.
Figures
published last month by ONS showed demand for staff remains high, with the
number of job vacancies rising to another record level. In total, there were
just under 1.2 million vacancies advertised in the three months to October,
nearly 400,000 more than before the onset of the pandemic.
The data
also revealed there were 160,000 more workers on company payrolls in October
than September; this latest rise means the overall number of employees is now
significantly higher than pre-pandemic levels. Interestingly, the redundancy
rate was reported as largely unchanged despite withdrawal of the government’s
furlough scheme on 30 September.
Commenting
on the figures, ONS Head of Economic Statistics Sam Beckett said, “It might
take a few months to see the full impact of furlough coming to an end. However,
October’s early estimate shows the number of people on the payroll rose
strongly on the month and stands well above its pre-pandemic level. And
businesses tell us that only a very small proportion of their previously
furloughed staff have been laid off.”
Retailers
enjoy early Christmas lift
An early Christmas
spending spree provided retailers with a significant boost in October, while
survey evidence suggests sales growth looks set to continue into the festive
period.
According
to the latest ONS data, retail sales volumes rose by 0.8% in October to end a
run of five successive months with no growth at all. The increase, which beat
analysts’ expectations, was focused on the non-food store sector, including clothing
and toy sales. ONS noted that some retailers felt “early Christmas trading
had boosted sales.”
The
latest Distributive Trades Survey from the CBI suggests this trend continued
last month with the net balance of retailers reporting sales growth rising from
+30 in October to +39 in November; this represents the strongest pre-Christmas
reading since 2015. Furthermore, retailers said they expect sales to remain
above seasonal norms in December as well.
CBI
Principal Economist Ben Jones commented, “Christmas seems to have come early
for retailers, with clothing and department stores in particular seeing a big
upward swing in sales volumes. It seems likely that reports of supply chain
disruptions prompted consumers to start their Christmas shopping early.
Overall, retailers are becoming more optimistic.”
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