Eon has become the latest company to come under fire for its blasé response to the energy crisis – after it sent socks to its customers.
The group’s renewable household energy supplier Eon Next sent the socks to 30,000 customers as part of an energy saving campaign that started last year.
The garments, which depict a sun hugging planet earth, have been shared widely on social media. It comes amid predictions household bills could soar more than 50pc from April. Eon said it was “incredibly sorry” for how its actions made some customers feel.
Earlier this week Ovo boss Stephen Fitzpatrick apologised after his firm advised customers to keep warm by eating ginger, having a hula-hoop contest and hugging their pets.
That’s all from us this week, thank you for reading and see you on Monday. Before you go, check out the latest stories from the business desk:
Owners of Britain’s electricity cables take £3.5bn in dividends since 2016
Electricity network owners have collectively taken £3.5bn in dividends since 2016, new figures reveal, as the Government’s infrastructure tsar warns Storm Arwen shows a more “proactive” stance over network resilience is needed. Rachel Millard writes:
The UK’s distribution network operators (DNOs), which own and run the power lines connecting homes and businesses to the electricity grid, have invested about £12bn in resilience measures over the same period, the figures show.
The five DNOs include Northern Powergrid, part of Warren Buffett’s Berkshire Hathaway; UK Power Networks, owned by Hong Kong billionaire Li Ka-shing; and Electricity North West, whose owners include Japan’s Kansai Electric Power.
The companies are being scrutinised by the Commons business select committee following Storm Arwen. It destroyed or damaged infrastructure in the north of England and Scotland in December, leaving tens of thousands of people without power for as long as 10 days.
FTSE 100 closes on sour note amid speculation on US interest rates rise
Investors ended the week on a cautious note with markets falling as fears build over just how much the US Federal Reserve will need to bump interest rates to combat rising inflation.
The FTSE 100 closed the day down 0.3pc at 7542, although it was up on the start of the week.
Investors remained unimpressed by JPMorgan posting strong profits in its latest results
Chris Beauchamp, chief market analyst at IG, commented: “Investors appear to be in a mood to look for negatives in this round of earnings updates, if today’s from JPMorgan are anything to go by.
“Profits were up, but so were costs, and the bank couldn’t resist the opportunity to opine on what it thinks the Fed will do too, in this case going for a rather extreme ‘six or seven’ rate hikes for the year.
“In a world of higher rates, investors are going to be more demanding when it comes to company performance, and JPMorgan has felt the brunt of that today, down 5pc in afternoon trading.”
Healthcare retailer Holland & Barrett to open 120 stores in Europe
High street healthcare retailer Holland & Barrett has announced plans to open 120 stores in Europe.
The chain will launch sites in Greece, Romania and Bulgaria in partnership with local retailer Fourlis Group, which operates stores for Ikea, Intersport and Athlete’s Foot in the countries. The deal will include local language websites.
Chief commercial officer Alex Dower said: “H&B is fast becoming a true global brand, with H&B product available in stores and online in 18 countries around the world with more planned for the future.”
Citigroup profit drops on higher expenses, consumer banking weakness
Citigroup has reported a 26pc drop in fourth-quarter profit, reeling from weakness at its consumer banking arm and a surge in expenses driven by costs stemming from the exit of its retail businesses in Asia.
The lender has been shedding the last of its consumer businesses outside of the US as part of a “strategy refresh” started by chief executive Jane Fraser, who took the helm in March.
It has also spent more in the past few quarters to fix issues regulators identified in its controls systems, leading to questions from investors on how much money and time the remedies will require.
In the fourth quarter, the bank’s operating expenses surged 18pc mainly due to costs tied to the exit of retail banking operations in South Korea, a move announced in October.
Spanish court orders Santander to pay €51m to Andrea Orcel over cancelled job offer
A Spanish court reduced the compensation that Andrea Orcel is set to receive from Banco Santander after it withdrew an offer for him to become its chief executive officer.
Mr Orcel should receive about €51m (£42.6m) from the Spanish bank instead of the €68m previously set.
According to a ruling last month, Santander’s offer to Orcel, who is now the chief executive of Italy’s UniCredit, was a valid contract and as such the bank broke it when it decided not to go ahead with the appointment in Jan. 2019.
Apple may delay launch of hotly-anticipated mixed-reality headset
Apple is considering pushing back the debut of its mixed-reality headset by at least a few months, potentially delaying its first major new product since the Apple Watch in 2015, Bloomberg reported.
The headset, a high-end device that blends virtual and augmented reality, would have been unveiled at Apple’s annual Worldwide Developers Conference in June, followed by a release later in the year. But development challenges related to overheating, cameras and software have made it harder to stay on track.
That could push the announcement until the end of 2022 or later, with the product hitting shelves by 2023.
The delay would mark a setback for a product seen as one of Apple’s famous “next big things” – a new category that can keep sales growing and help justify the tech giant’s nearly $3 trillion market valuation. The company hasn’t discussed the headset publicly, but the product has been years in the making and already delayed before.
That’s a wrap for the week from me – thanks for following! Giulia Bottaro will see you through to the weekend…
Sensyne Health shares collapse on emergency fundraising
Shares in a healthcare company led by a former Labour science minister collapsed on Friday after it announced an emergency fundraising to stave off imminent collapse, writes Helen Cahill.
Sensyne Health, whose chief executive is Lord Drayson, put itself up for sale in November but has now agreed a £6.4m loan from institutional shareholders.
Those investors indicated they could provide a further £5m if required. Sensyne said it was also chasing a “substantial debtor” for funds.
The fundraising announcement sent shares down 70pc to 22.8p, valuing the company at £37m.
Without the cash Sensyne said it was “unlikely to be able to continue to trade beyond early February”.
Crown Estate launches electric truck trial with Volta
Startup Volta has inked a deal with the Crown Estate to trial the use of electric trucks to deliver goods to retailers on Regent Street.
The trial, which will begin this summer, will be run by the Crown Estate’s distribution provider Clipper Logistics and involve a prototype Volta Zero, a 16-tonne electric truck due to go into production by the end of the year.
It comes amid a scramble to test and buy electric commercial vehicles ahead of a ban on petrol and diesel vehicles that comes into force at the end of the decade.
The Crown Estate, one of the largest property owners in London’s West End, has a delivery consolidation system in place with Clipper, where goods are gathered at a warehouse outside the capital and combined into as few lorries as possible to cut congestion on Regent Street.
US factory output hit by supply shortages
US factory output unexpectedly declined in December as a surge in Covid cases fuelled material and labour shortages.
The 0.3pc decrease followed a revised 0.6pc gain in November, according to figures from the Federal Reserve. Total industrial production, which also includes mining and utility output, fell 0.1pc in December.
The figures highlight the slow return to normal for factories as they battle supply troubles – something that’s been exacerbated by omicron.
Meanwhile, separate data showed US consumer sentiment declined in January by more than forecast amid concerns about omicron and inflation.
The University of Michigan’s preliminary sentiment index fell to 68.8 from 70.6 in December – the second-lowest in a decade.
Dogecoin surges as Musk says Tesla will accept digital coin for merch
Dogecoin surged after Elon Musk said Tesla will accept the cryptocurrency as payment for its merchandise.
The move, which comes a month after the billionaire said Tesla would test out the digital coin as a payment option, sent dogecoin up as much as 14pc.
Mr Musk has heavily influenced the price of dogecoin – which is based on the meme of a Shiba Inu dog – and bitcoin with his Twitter proclamations.
Tesla merchandise, which includes the recently launched Cyberwhistle and Cyberquad for Kids, is a hit with its fans, and usually sell out within a few hours of listing.
Value of football transfers drops to five-year low
The value of football transfers around the world was the lowest for five years in 2021 as the pandemic took its toll on clubs’ finances for a second year.
Spending on transfer fees was $4.9bn (£3.6bn), a fall of 13.6pc compared to 2020 and down more than a third from record levels in 2019, according to FIFA.
While the biggest transfer of 2021 – Romelu Lukaku’s £97.5m move from Inter Milan to Chelsea – caught the eye, overall transfer spending fell despite the number of transactions increasing.
A total of 18,068 transfers were registered, against 17,190 in 2020, a rise of 5pc.
The top 10 transfers alone generated almost 15pc of the total spending while the vast majority of moves – nearly 88pc – involved free transfers, suggesting cash-strapped clubs were looking for bargains.
French players were the nationality that accounted for the highest amount of spending, with $643m, displacing Brazil from the top spot.
Wall Street slides at the open
US stocks have opened lower this afternoon as Wall Street earnings season kicked off with a mixed set of bank results.
The S&P 500 fell 0.5pc, while the Dow Jones was down 0.3pc. The tech-heavy Nasdaq fell 0.7pc.
JPMorgan and Citigroup both fell in pre-market trading after their updates failed to impress investors, while Wells Fargo gained as its profits beat expectations.
IEA: World facing more years of high energy prices
The world is facing more years of high energy prices and emissions unless the sector changes faster after record demand last year, the International Energy Agency (IEA) has warned.
A rebound in demand following the pandemic, combined with unusual weather, caused electricity demand to jump 6pc in 2021 – the largest increase since 2010. In absolute terms, the increase of more than 1,500 terawatt-hours was the largest ever, the IEA said.
This pushed prices to unprecedented levels while emissions from the electricity sector rose by 7pc – also an all-time high – after having decreased the previous two years.
The IEA said: “In the absence of faster structural change in the sector, rising demand over the next three years could result in additional market volatility and continued high emissions.”
German economy still smaller than pre-pandemic size after omicron reversal
Germany’s economy went into reverse at the end of 2021, as omicron combined with supply shortages left the industrial powerhouse further away from returning to its pre-Covid size.
Tim Wallace delves into the numbers:
The eurozone’s largest economy expanded by 2.7pc over the year as a whole, official figures showed, rebounding only partially from the 4.6pc decline suffered in 2020.
It means GDP for 2021 as a whole was still 2pc lower than it was in 2019 before the pandemic struck.
Official data for the last three months of the year is not published until January but the statistics office said the economy contracted by between 0.5pc and 1pc compared with the third quarter.
Factory output climbed 4.4pc in the year after a 10pc drop in 2020. Business services rebounded by 5.4pc, from a 7.4pc drop. Construction shrank in 2021 after a stronger 2020.
Regulator to investigate retailers over ‘greenwashing’
The competition watchdog will investigate potentially misleading claims by retailers about their environmental credentials as part of a wider investigation into so-called greenwashing.
The Competition and Markets Authority (CMA) said it will look into several common green claims across the British fashion sector, such as claims about recycled materials and clothing ranges branded as sustainable.
The CMA said it will take appropriate action against businesses found to be guilty of greenwashing and will also look into other sectors as part of the investigation.
JPMorgan profits dip on higher costs
JPMorgan reported a dip in profits in the fourth quarter as higher costs offset the improved economic conditions.
Profits came in at $10.4bn (£7.6bn), down 14pc from the previous year. The results included $1.8bn in net reserve releases from funds that were set aside earlier in the pandemic in case of bad loans.
JPMorgan reported higher investment banking fees and a rise in overall lending activity. However, an 11pc rise in costs for wages, technology and marketing hit margins. Shares slid 3.5pc in premarket trading.
Meanwhile, rivals Wells Fargo and Citigroup both beat profit estimates as more customers took out loans.
The lender also trimmed down non-interest expenses by 11pc to $13.2bn, driven by lower personnel costs, as well as lower restructuring charges and operating losses.
Citigroup posted a 26pc drop in fourth-quarter profit but exceeded market expectations as strong gains in its investment banking business cushioned the blow from higher expenses.
Volkswagen’s Chinese factory shut down in latest Covid outbreak
Volkswagen has become the latest car manufacturer to be hit by a fresh outbreak of Covid in China, piling pressure on already strained supply chains.
A production plant in the Tianjin region operated by the German company’s joint venture with FAW Group has been shuttered since Monday. As has a gearbox supplier controlled by VW.
A Toyota factory in the same area that produces half a million cars each year has been closed for five days.
Halting the VW plant may hit production of the Audi Q3 and several versions of the VW Tayron compact SUV, the company said.
Volkswagen, which employs around 8,000 people in Tianjin, expects to resume output “very soon” and catch up with lost production.
US futures fall ahead of Wall Street results
US futures slipped on Friday as investors turned their attention to the upcoming results season on Wall Street.
Focus has been largely on interest rates recently, but investors will be looking at companies for signs of how the economy is performing. JP Morgan, Wells Fargo and Citigroup are all due to report.
Futures tracking the S&P 500 fell 0.2pc, while the Nasdaq dropped 0.3pc. The Dow Jones was down 0.1pc.
Energy crisis deepens as war threat mounts
European power and gas prices have pushed even higher this morning as the continent’s energy crisis deepens.
Markets came under further pressure as the prospect of conflict in Ukraine increased. Meanwhile, nuclear giant EDF sank the most on record after the government said it must sell power at a steep discount, and several reactors faced long outages.
German electricity for the third quarter soared as much as 25pc, while benchmark European gas prices added as much as 13pc.
Analysts at Energi Denmark told Bloomberg: “The risk of a potential new war in Ukraine and the effects this could have on the gas market continue to cause a lot of uncertainty.
“German power climbs due to the news about reduced nuclear power production in France.”
Eon: We’re sorry for how we made some people feel
Eon has apologised for the socks incident – sort of .
In a tweet this morning the energy supplier said it was “incredibly sorry for how we have made some people feel”.
Deal to be done on post-Brexit trade, says Liz Truss
The UK and the EU have vowed to intensify negotiations to resolve post-Brexit trade issues, with Foreign Secretary Liz Truss saying there was a deal to be done.
After hosting European Commission Vice-President Maros Sefcovic for “good talks” at her country residence, Truss said she wanted to make progress on sorting out resolve problems with the implementation of the rules governing trade between Britain, its province Northern Ireland, and EU-member Ireland.
She told reporters: “What I want is a negotiated solution, I think there is a deal to be done. We have had constructive talks over the last day.”
Officials from the two sides will now meet for intensified discussions next week, before Ms Truss and Mr Sefcovic hold another meeting on Jan 24.
Government sells £420m of NatWest shares
The Government has offloaded shares in NatWest worth around £420m as it continues to slim down the majority stake it took during the financial crisis.
The Treasury sold another 170.4m shares, meaning it now holds a 52pc stake in the bank formerly known as RBS. Its stake is valued at around £14.5bn at current prices.
The Government last year said it would sell down its stake over a year-long period from August. It said no more than 15pc of the lender’s total trading volume would be sold.
The Treasury remains NatWest’s biggest shareholder, more than a decade after RBS’ £45.5bn bailout. It will likely suffer a hefty loss, even with the share price rising around 50pc in the last year.
Citi: Boris Johnson exit could boost defence sector
A leadership change in Downing Street could provide a boost for British defence firms – depending on who were to replace the beleaguered Boris Johnson.
That’s according to analysts at Citigroup. They said they couldn’t take a view on whether the Prime Minister would survive the furore over repeated lockdown parties at No. 10.
Still, they outlined the possible consequences for defence firms if there were a change of leadership.
Citi said that while Chancellor Rishi Sunak’s focus on the economy and responsible spending would make him a “neutral” choice for the sector, Foreign Secretary Liz Truss would “likely be more bullish” as she pushes for a “global Britain”.
The bank noted that Housing Secretary Jeremy Hunt had backed higher defence spending in his 2019 leadership bid. Michael Gove would be “neutral/positive”, while Sajid Javid would be neutral.
Meanwhile, Labour leader Keir Starmer would be “probably positive” for defence spending if elected.
Analyst Charles J Armitage said: “Starmer is not Jeremy Corbyn and he wants to cultivate a pro-British working class Labour party as well as keeping the UK nuclear deterrent.”
M&S and BP extend forecourt deal until at least 2030
Marks & Spencer and BP have agreed to renew their deal for petrol station convenience stores until at least 2030.
M&S Food is available at almost 300 BP-operated sites across the country under the terms of the existing deal.
The companies said customers were buying 20pc more at BP forecourt stores during lockdown, adding that this trend looked set to continue.
Openreach chairman becomes frontrunner in Ofcom race
The chairman of BT’s network arm Openreach has emerged as the frontrunner in the race to oversee Ofcom, in a process being led by Sue Gray even as she investigates parties in Downing Street.
Christopher Williams writes:
Mike McTighe has applied to head up the board at the media and telecoms regulator after previous attempts by Boris Johnson to install Paul Dacre, the former editor of the Daily Mail, triggered a political storm.
The Prime Minister attempted to install Mr Dacre at the head of the board of one of Britain’s most influential regulators last year.
However, an independent panel led by a senior civil servant found that he was “not appointable”. The Government then relaunched the search almost two years after it was announced that the previous permanent chairman of Ofcom would step down. But Mr Dacre withdrew from the race in November.
Ms Gray, the senior civil servant now leading the investigation into lockdown parties in Downing Street, is chairman of the new independent appointment panel.
Fortnum & Mason toasts Christmas boom after lockdown hits sales
Fortnum & Mason’s sales grew by more than a fifth over the crucial Christmas trading period as shoppers returned after a torrid pandemic year.
The upmarket department store said revenues were up 21pc year on year in the five weeks to Boxing Day as store footfall returned and online sales jumped 65pc.
Fortnum’s said pistachio & clotted cream biscuits were this Christmas’ best-sellers, while one of the most popular products was sparkling tea, reflecting increased demand for non-alcoholic drinks.
It came after the retailer suffered a 6pc fall in revenue to £132m in the year to July as lockdowns took their toll – particularly on its flagship Piccadilly store, which accounts for 80pc of sales.
The company swung to a pre-tax loss of £2.7m as a result of the closures, as well as higher supply chain costs and the decision to not draw on the Government’s furlough relief.
Tom Athron, chief executive of Fortnum & Mason, said:
Looking ahead, the broader outlook remains uncertain and we are seeing the same cost pressures materialise as others in our market have reported.
However, I am confident that 2022 will be an exciting year for Fortnum’s, building on this momentum with continued investment in our Piccadilly flagship as well as our technology capabilities and increased capacity to support the growth in demand, both here, and overseas.
HSBC investment bank co-head to take six-month sabbatical
HSBC has told its employees that co-head of investment banking and markets will take a six-month sabbatical.
Georges Elhedery, who runs the bank’s global trading arm, said he was taking the break for his “own personal development and growth”, according to an internal memo seen by the Financial Times.
Greg Guyett, who leads the capital markets and M&A advisory division, will now also oversee the markets side of the unit from March until Mr Elhedery’s return in September.
Mr Elhedery said he’d been considering a sabbatical for several years and had decided now was the best time since the investment bank had largely hit its 2022 targets a year early.
Facebook hit with class action lawsuit over market dominance
Facebook has been slapped with a class action lawsuit over claims it exploited its users’ personal data and abused its dominant position.
The case, which will be filed at the Competition Appeal Tribunal on behalf of 44m British Facebook users, will lay out how the social media firm only gave access to its platform in exchange for user data that generated billions in revenue.
The claim, brought by competition expert Liza Lovdahl Gormsen, is seeking damages of at least £2.3bn.
It’s the latest in a long line of cases that have been brought against Facebook, now known as Meta. The US Federal Trade Commission is looking to undo the company’s acquisitions of Instagram and Whatsapp, while the Competition and Markets Authority has ordered it to sell Giphy.
Google buys London HQ in $1bn vote of confidence for the office
Google has paid $1bn (£730m) to buy its central London building in what it said demonstrated a long-term commitment to the value of having workers in the office.
James Titcomb has more:
The search giant, which has 6,400 staff in the UK, said buying the Central St Giles building reflected its “continued confidence in the office as a place for in-person collaboration”.
The company plans to refit the 15-storey complex, where it occupies about 40pc of the space, for a new era of hybrid working that include video calls and outdoor meetings.
The deal will allow Google to accommodate up to 10,000 staff in the UK.
It was welcomed by Rishi Sunak, the Chancellor, as “a big vote of confidence in the UK as a world-leading tech hub”.
Germany economy grew 2.7pc in 2021
Germany’s economy grew 2.7pc in 2021, hampered by supply chain woes and the fastest rate of inflation in three decades.
While no quarterly breakdown was given, growth in the final three months of the year was “weak”, according to an Economic Ministry release, suggesting omicron took its toll in the fourth quarter.
The ministry said: “The final quarter of 2021 was probably weak, given necessary restrictions in contact-intense services and production difficulties in manufacturing due to persistent supply bottlenecks.”
Currys: Price rises ‘inevitable’ in 2022
There’s another grim warning about rising prices – this time from the boss of Currys.
Alex Baldock said consumers should expect to pay more for electricals and technology products this year, describing price rises as “inevitable”.
He told reporters: “One of the things that we do expect across the market in 2022 are some price rises, we think that’s inevitable.
“The direction is definitely inflationary. That’s one of the contributors… also to the uncertainty in the outlook because consumers are keeping a close eye on the cost of living at the moment.”
EDF crashes 25pc as France caps energy prices
State-controlled energy supplier EDF plunged as much as 25pc after France confirmed plans to cap power prices in an effort to protect household from surging bills.
The unprecedented move could cost the company €7.7bn (£6.4bn), prompting a record crash in its share price.
It’s the latest move by President Emmanuel Macron to tackle inflation and gain the support of voters ahead of April’s presidential election amid Europe’s energy crisis. The utility being part-owned by the French state makes it easier to implement this.
Separately, EDF warned several of its nuclear power plants in France would be offline for repairs for longer than expected, prompting the firm to slash its output forecast from its reactors by 8pc.
The setback threatens to drive up power prices even further as Europe battles a huge energy crisis.
B&M slides as Arora brothers sell more shares
Shares in B&M slid 3.3pc this morning after the billionaire brothers behind the retailer sold another major chunk of their shares.
Simon and Bobby Arora are selling 40m shares priced a 585p apiece, giving total proceeds of around £234m. The offering by SSA Investments – the Arora family’s Luxembourg-based investment firm – was made via Goldman Sachs.
The placing represents around 4pc of B&M’s issued share capital, with the British brothers retaining a stake of around 7pc after the placing.
Simon, B&M’s 52-year-old chief executive officer, and Bobby, 50, group trading director, took control of the company in 2005 when it was losing money and turned it into a discount giant with more than 600 stores across the country.
FTSE risers and fallers
The FTSE 100 has recovered its early losses, though it’s still trading in the red despite new figures showing the economy bounced back above pre-pandemic levels in November.
The blue-chip index took its cue from European and Asian stocks, with investor sentiment weaker amid fears of faster US interest rate hikes.
International giants Unilever and Diageo were the biggest drags on the FTSE as the pound continued to gain ground. Experian also fell 1.7pc following a trading update.
The domestically-focused FTSE 250 fell 0.2pc, with Currys dropping as much as 5.6pc after it warned supply troubles hit Christmas sales.
Spider-Man saves the day for Cineworld
Cineworld has said its December box office sales recovered to 90pc of pre-pandemic levels, thanks largely to a helping hand from Spider-Man.
The world’s second largest cinema operator said it had suffered a hit from the delay of Top Gun: Maverick from its original release date of November to May 2022.
However, Marvel blockbuster Spider-Man: No Way Home swooped in to save the day. It became the sixth-highest grossing film at the US box office ever, raking in $668m (£486m) so far and surpassing Titanic.
The film was also the first one in the pandemic-era to smash $1bn in sales globally.
It will come as a much-needed boost to Cineworld after it was ordered by a court to pay more than £700m in damages following the bungled takeover of a Canada rival.
Shares in the London-listed company, which also owns the Picturehouse chain and Regal Cinemas in the US, rose 3pc in early trading.
Pound ticks up on November growth
Sterling has ticked up again this morning, extending its longest winning streak in nearly two months as the economy surpassed its pre-pandemic size in November.
The pound rose as much as 0.2pc against the dollar to $1.3738 this morning, continuing its longest run of gains since November 18. Against the euro, it’s steady at 83.58p.
Sterling has been gaining ground against a weakening dollar in recent weeks, while the latest GDP data will fuel further optimism.
But analysts warned there were many risks to the pound remaining – not least surging inflation, planned tax rises and renewed Brexit concerns.
Currys sales slide amid supply disruption
Away from GDP, there are some trading updates out this morning that give a sense of how the economy fared in December.
Technology retailer Currys reported a drop in sales over the crucial Christmas period, which it blamed on “uneven customer demand and supply disruption”.
The FTSE 250 firm said demand for some products – such as the PS5 and home appliances – was strong, while virtual reality consoles “flew off the shelves”.
But it said the overall tech market shrank by around a tenth compared to last year. Overall like-for-like sales dropped 5pc for the 10 weeks to January 8, though they remained above pre-pandemic levels.
Currys said it expects pre-tax profits of £155m for the full year, The retailer also launched a £75m share buyback programme.
Alex Baldock, chief executive of Currys, said:
The technology market was challenging this Christmas, with uneven customer demand and supply disruption. Against this backdrop, Currys’ colleagues showed their resilience and the stronger business we’ve built.
We gained market share, improved customer satisfaction, traded profitably and can look ahead with confidence.
FTSE 100 falls despite strong GDP figures
The FTSE 100 has dropped at the open even after new figures showed the economy recovered to above pre-pandemic levels in November.
The blue-chip index fell 0.4pc to 7,533 points.
Post-Brexit trade gap widens
The ONS figures also revealed a widening gap between the UK’s imports from the EU and the rest of the world.
Louis Ashworth explains:
The gap between rest-of-world and EU goods imports hit the widest point since Brexit in November, with the UK more reliant than ever on products from beyond the bloc amid elevated energy imports.
Imports from the EU ticked up by £0.8bn, driven by increased imports of chemicals, many of them linked to vaccine production, from Belgium, Germany, Ireland and the Netherlands. Meanwhile, British manufacturers brought in components from the wider world and equipment from China, growing non-EU imports by £1.1bn.
It was the 11th consecutive month that rest-of-world imports outstripped those from EU, although the combined effects of Brexit and the pandemic have made trade data for the last three years unusually volatile. Exports were little changed.
The ONS said there was “no strong evidence” that companies had been stockpiling goods in November ahead of the introduction of new import checks in January.
IoD: Economy ‘fundamentally wants to recover’
Kitty Ussher, chief economist at the Institute of Directors, says the data shows the economy fundamentally “wants to recover”.
Today’s data shows that people were in a mood to spend in the early run-up to Christmas, and confirms the strong results posted by some large retailers in recent days.
Although the data doesn’t cover the change in behaviour caused by the omicron variant it nevertheless demonstrates that fundamentally this is an economy that wants to recover.
Risks to that recovery aside from the effects of omicron come from the rising costs to businesses and households that are expected in future months such as from the increase in National Insurance.
It’s also a notable irony that the work of the NHS Track and Trace service is now in itself visible in the data as contributing to our economic recovery from the pandemic.
Expert reaction: Inflation is biggest threat to outlook
Dean Turner, economist at UBS Global Wealth Management, says the latest numbers show the economy was in “good shape” as it entered into the latest wave of the pandemic, but inflation worries linger.
Unquestionably, the impact of omicron and Plan B will have dented activity in December, nevertheless the fourth quarter is still on course to deliver positive growth.
With omicron seemingly less severe than other variants, we expect its impact on the economy to be less devastating than previous waves. January is likely to be another weak month, but we expect the economy to recover reasonably swiftly thereafter.
However, of more concern in the short term is the inflationary outlook. Risks clearly remain to the upside for the time being, which will keep the Bank of England in a hawkish mood, with further hikes likely in the months ahead.
Expert reaction: GDP will be weaker than forecast this year
Paul Dales, chief economist at Capital Economics, warns the hit from omicron may mean GDP temporarily falls back below its peak by January.
Output… probably fell back in December and perhaps January too due to the effects of the government’s Plan B restrictions, staff absences due to Omicron isolation/illness and some consumer caution. We’ve pencilled in a 0.5pc month-on-month decline in GDP for both December and January.
November’s better-than-expected result means that GDP may have risen by 1.1pc quarter-on-quarter in the fourth quarter as a whole, while we now think GDP in the first quarter may have been flat.
The recent signs that the omicron wave is starting to subside suggests that GDP will probably rebound in February and March. But growth will then be restrained by the hit from higher taxes and utility prices from 1st April.
We suspect GDP this year will be weaker than the consensus forecast. But our forecast that CPI inflation will rise to almost 7pc in April explains why we think Bank Rate will be raised four times this year, from 0.25pc to 1.25pc.
Services lead the way
Once again it’s Britain’s dominant services sector that’s driving growth.
That said, output was up across all parts of the economy and the UK recorded its sharpest growth since June – just after the easing of Covid restrictions.
The numbers are slightly outdated, however, with the impact of omicron coming into full swing in December. With cases rising and many Brits opting to stay at home, it’s hospitality firms that are likely to have suffered the most over Christmas.
Which sectors are driving economic growth?
Here’s a look at which parts of the economy drove GDP growth in November, courtesy of Grant Fitzner, chief economist at the ONS:
The economy grew strongly in the month before omicron struck with architects, retailers, couriers and accountants having a bumper month.
Construction also recovered from several weak months, as many raw materials became easier to get hold of.
This meant that monthly GDP exceeded its pre-pandemic level for the first time in November.
Rishi Sunak hails ‘grit and determination’ of Brits
In a characteristically bullish statement, Chancellor Rishi Sunak said the recovery was “a testament to the grit and determination of the British people”.
But it’s worth noting that the figures offer a snapshot of how the economy was performing before the arrival of omicron at the end of November.
Tighter restrictions have subsequently been introduced across the UK, although they have not gone as far as previous, full-blown lockdowns.
Newer data released since has indicated omicron has had a fairly limited impact on the economy, except in certain areas such as hospitality, where industry surveys have found a slump in restaurant dining as Britons sought to avoid a record-breaking wave of infection.
UK enjoys blowout November
Here’s some more on the GDP figures from our economics reporter Louis Ashworth:
GDP rose 0.9pc in November, far faster than the 0.4pc expected by economics, leaving output 0.7pc above its February 2020 level.
Growth was driven by a 1.4pc jump in the retail trade, as a result of shoppers bringing forward Christmas purchases amid concern about shortages and supply-chain disruptions, and strong Black Friday sales.
Output increased across all sectors, with services rising 0.7pc in total, while production climbed 1pc and construction 3.5pc amid dry and mild weather, according to the Office for National Statistics.
Unless GDP falls more than 0.2pc in December, or there is a revision to the data, November’s jump means the UK economy “will either reach or surpass its pre-coronavirus level” across the fourth quarter as a whole, the ONS said.
UK GDP picks up
There’s encouraging data out this morning showing the economy recovered to above pre-pandemic levels in November.
GDP grew 0.9pc over the month, meaning it’s now 0.7pc above its pre-Covid peak. The growth was driven largely by service sector activity.
However, the ONS figures cover the period before the omicron variant ran riot through the country, meaning growth may well have slowed before the end of the year.
5 things to start your day
1) Google buys London HQ in $1bn vote of confidence for the office A previous attempt to buy the building fell through during the pandemic
2) Spend more on renewables or power prices will keep rising, warns IEA Agency calls for ‘structural change’ to meet growing demand for power
3) US stocks sink again as interest rates rise looms Investors have been offloading shares most sensitive to higher interest rates, such as loss-making growth companies
4) Asos moves to London’s main market after 20 years on Aim Online fashion retailer’s proposed LSE move will make it eligible to enter the FTSE 250
5) Investors attack ‘confusing’ EU takeover rules that still apply to the City Mergers still weighed down by EU regulations despite Brexit, say corporate titans
What happened overnight
Asian shares took a beating on Friday after a fresh salvo of hawkish remarks from Federal Reserve officials solidified expectations that U.S. interest rates could rise as soon as March, leaving markets braced for tighter monetary conditions.
Equity markets turned deeply red, with MSCI’s broadest index of Asia-Pacific shares outside Japan shedding 0.9pc in mid-afternoon trade, while Australia lost 1.1pc and Japan’s Nikkei gave up 1.3pc.
South Korean shares dropped 1.4pc after the country’s central bank raised its benchmark rate 25 basis points to 1.25pc on Friday, as expected, taking it back to where it was before the pandemic as it seeks to restrain consumer price rises.
China’s blue-chip index declined 0.5pc and Hong Kong’s Hang Seng index was off 0.9pc.
Coming up today
- Corporate: Currys, Experian (trading update)
- Economics: GDP, manufacturing, production (UK); industrial production (UK, US); retail sales, Michigan consumer sentiment index (US)