{"id":3812,"date":"2022-01-07T11:13:03","date_gmt":"2022-01-07T11:13:03","guid":{"rendered":"https:\/\/new.contentdeployment.co.uk\/tomd\/2022\/01\/07\/economic-review-december-2021\/"},"modified":"2022-01-07T12:50:16","modified_gmt":"2022-01-07T12:50:16","slug":"economic-review-december-2021","status":"publish","type":"post","link":"https:\/\/new.contentdeployment.co.uk\/tomd\/2022\/01\/07\/economic-review-december-2021\/","title":{"rendered":"Economic Review – December 2021"},"content":{"rendered":"
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Bank sanctions\nDecember rate rise<\/strong><\/p>\n<\/div>\n\n

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The Bank of England\n(BoE) sanctioned a 15-basis-point increase in<\/strong> its\nmain interest rate on 16 December and warned that inflation is now likely to\nhit 6% by spring. <\/strong><\/p>\n<\/div>\n\n

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At\nits latest meeting held in mid-December, the BoE\u2019s nine-member Monetary Policy\nCommittee voted by an 8-1 majority to raise Bank Rate to 0.25% from its previous\nhistoric low of 0.1%. This was the Bank\u2019s first rate hike in more than three\nyears and resulted in the BoE becoming the world\u2019s first major central bank to\nraise rates since the onset of the pandemic. <\/p>\n<\/div>\n\n

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The\nannouncement was made a day after the Office for National Statistics (ONS)\nreleased the latest inflation data, which showed the cost of living is now\nrising at its fastest rate for 10 years. In the 12 months to November, the rate\nof inflation, as measured by the Consumer Price Index (CPI), surged to 5.1%.\nThis was significantly higher than October\u2019s 4.2% figure and above all\nforecasts in a Reuters poll of economists.<\/p>\n<\/div>\n\n

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Speaking\nafter announcing the rate hike, BoE Governor Andrew Bailey said that an outlook\nfor \u201cmore persistent<\/em> inflation pressures\u201d<\/em> had forced the Bank\nto act. Mr Bailey said, \u201cWe\u2019re concerned\nabout inflation in the medium term and we\u2019re seeing things now that can\nthreaten that.<\/em> So that’s why we have\nto act.\u201d\u202f<\/em><\/p>\n<\/div>\n\n

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The\nGovernor also revealed that the Bank now expects the CPI inflation rate to peak\nat around 6% in April, which would be three times above the BoE target figure.\nAlthough the rate is then expected to fall back across the second half of 2022,\nthe Bank acknowledged that more \u201cmodest\ntightening of monetary policy\u201d<\/em> over the three-year forecast period \u201cis likely to be necessary\u201d<\/em> in order to\nensure inflation sustainably returns to its 2% target level.<\/p>\n<\/div>\n\n

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UK\ngrowth rate stutters<\/strong><\/p>\n<\/div>\n\n

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Gross\ndomestic product (GDP) figures released last month show the UK economic\nrecovery had already lost momentum even before the emergence of the Omicron\nvariant.<\/strong><\/p>\n<\/div>\n\n

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The\nlatest GDP statistics show the economy expanded by just 0.1% in October, much\nweaker than the 0.4% consensus forecast predicted in a Reuters poll of\neconomists. Growth was largely driven by a rise in face-to-face GP appointments\nat surgeries in England, although this was offset by a decline in industrial\noutput, with production falling in both the electricity and gas, and mining and\nquarrying sectors. <\/p>\n<\/div>\n\n

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In\naddition, a revision to previous GDP data revealed that the economy had\nactually grown at a slower pace during the third quarter. The new estimate puts\nJuly to September\u2019s growth rate at 1.1%, rather than 1.3% as initially thought.\nAs a result, the UK economy remains 1.5% smaller than its pre-pandemic level.<\/p>\n<\/div>\n\n

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More\nrecently, economic activity has been hit by the spread of the Omicron variant.\nPreliminary data from last month\u2019s IHS Markit\/CIPS Purchasing Managers\u2019 Index\n(PMI) pointed to a sharp slowdown in UK private sector growth as rising virus\ncases hit consumer services spending.<\/p>\n<\/div>\n\n

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The\nflash reading of the PMI\u2019s composite output index fell to a 10-month low of\n53.2 in December, leading CIPS Group Director Duncan Brock to describe the data\nas \u201cgrim news\u201d<\/em> for the UK economy. Mr\nBrook also said that positive gains over the last ten months had been \u201cwiped out by yet another round of\nrestrictions and curbs on consumers and businesses.\u201d<\/em><\/p>\n<\/div>\n\n

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Just\nbefore Christmas, the Chancellor unveiled a \u00a31bn support package to help\nbusinesses hit by rising cases. <\/p>\n<\/div>\n\n

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Markets\n<\/strong>(Data compiled by TOMD)<\/strong><\/strong><\/p>\n<\/div>\n\n

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Major\nglobal indices closed December in positive territory. Despite escalating virus\ncases, stocks were supported by hopes that the Omicron variant is milder,\npotentially limiting fiscal impact as vaccines have allowed many economies to\nremain open. <\/strong><\/p>\n<\/div>\n\n

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In\nthe UK, the FTSE 100 ended the year up 14.3%, registering its best annual gain\nfor five years, as it continued to recover from its pandemic-induced lows of\n2020. The FTSE 250, dominated by more domestically focused stocks, rose by\n14.6%, while the AIM closed the year up just over 5%.<\/p>\n<\/div>\n\n

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Wall\nStreet led the way, with the Dow close to a record high at the end of December,\nrising over 5% in the month and by 18.72% in 2021, while the NASDAQ closed the year up over 21%. The US economy has proven resilient in the face\nof pandemic-related challenges. As with other global economies, inflation will\nbe a focal point for investors going into 2022. Meanwhile, the\nNikkei 225 ended the year on 28,791.71, up over 4.9%, its highest year-end\nlevel since 1989, and the Euro Stoxx 50 closed the year up just over 20% on\n4,298.41.<\/p>\n<\/div>\n\n

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On\nthe foreign exchanges, sterling closed the year at $1.35 against the US dollar.\nThe euro closed at \u20ac1.18 against sterling and at $1.13 against the US dollar.<\/p>\n<\/div>\n\n

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Brent crude closed the year trading at around $78 a barrel, an annual gain of over 51%, its largest in 12 years. The price was lifted by higher demand as investors bet that surging virus cases would not derail the global economic recovery. Cautious production increases by OPEC+, the Organization of the Petroleum Exporting Countries plus allies, also helped to support the price. Gold is trading at around $1,805 a troy ounce, a loss of over 4.8% on the year. The price has been dampened by a stronger US dollar and the threat of a pullback in stimulus by major central banks, deterring many investors who favoured equities.<\/p>\n<\/div>\n\n

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Labour\nmarket remains resilient<\/strong><\/p>\n<\/div>\n\n

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The latest set of\nemployment statistics published by ONS suggests the UK labour market has\nwithstood the end of the government’s furlough scheme and remains in a\nrelatively robust state of health.<\/strong><\/p>\n<\/div>\n\n

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According\nto the most recent tax data, the number of people in payrolled employment\ncontinued to grow strongly, rising by a further 257,000 in November. This was\nthe largest monthly increase since records began in 2014 and lifted the total\nnumber of workers on company payrolls to 29.4 million, 424,000 above\npre-pandemic levels.<\/p>\n<\/div>\n\n

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There\nwas also positive news in terms of unemployment, with the headline rate in the\nthree months to October falling to 4.2%; down from 4.3% in the previous\nthree-month period. This suggests withdrawal of furlough at the end of\nSeptember has not sparked a significant rise in redundancies. Although ONS did\ncaution that some workers may still be working notice periods, it also said\nbusiness survey responses suggest the number of redundancies was likely to be\nrelatively small.<\/p>\n<\/div>\n\n

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The\ndata also showed job vacancies rising to another record high, with a total of\n1.22 million jobs advertised in the three months to November. ONS did, however,\nreport a slowdown in the rate of growth in vacancies.<\/p>\n<\/div>\n\n

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Omicron\nhits retail sector<\/strong><\/p>\n<\/div>\n\n

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While the latest\nofficial statistics revealed stronger than expected retail sales growth in November,\nmore recent survey evidence shows concerns over the Omicron variant has hit\nactivity on the High Street.<\/strong><\/p>\n<\/div>\n\n

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ONS\ndata showed that total retail sales volumes rose by 1.4% in November, beating\nanalysts\u2019 expectations of a 0.8% rise. ONS Statistician Heather Bovill said\nsales were boosted by \u201cstrong Black Friday and pre-Christmas trading\u201d <\/em>adding\nthat \u201cclothing stores fared particularly well and exceeded their\npre-pandemic level for the first time.\u201d<\/em> <\/p>\n<\/div>\n\n

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The\nlatest Distributive Trades Survey published by the Confederation of British\nIndustry (CBI), however, suggests sales growth fell back sharply last month,\nwith its headline net balance of retailers reporting sales growth slumping to\n+8 in December, down from +39 the previous month. This represents the lowest\nreading since non-essential shops were in lockdown last March.<\/p>\n<\/div>\n\n

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Perhaps\nunsurprisingly, the survey also found that sales are expected to grow at a\nsimilarly lacklustre pace in January. Commenting on the data, CBI Principal\nEconomist Ben Jones said, \u201cOur December survey confirms what we\u2019ve been\nhearing anecdotally about Omicron\u2019s chilling impact on activity on the High\nStreet, with retail sales growth slowing and expectations for the coming month\nsharply downgraded.\u201d <\/em><\/p>\n<\/div>\n\n

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It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.<\/strong> <\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"

Bank sanctions December rate rise The Bank of England (BoE) sanctioned a 15-basis-point increase in its main interest rate on 16 December and warned that inflation is now likely to hit 6% by spring. At its latest meeting held in mid-December, the BoE\u2019s nine-member Monetary Policy Committee voted by an 8-1 majority to raise Bank […]<\/p>\n","protected":false},"author":12,"featured_media":3813,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[32,34],"tags":[],"hd_content_source":[116],"_links":{"self":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/3812"}],"collection":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/users\/12"}],"replies":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/comments?post=3812"}],"version-history":[{"count":3,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/3812\/revisions"}],"predecessor-version":[{"id":3868,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/posts\/3812\/revisions\/3868"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/media\/3813"}],"wp:attachment":[{"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/media?parent=3812"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/categories?post=3812"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/tags?post=3812"},{"taxonomy":"hd_content_source","embeddable":true,"href":"https:\/\/new.contentdeployment.co.uk\/tomd\/wp-json\/wp\/v2\/hd_content_source?post=3812"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}