Omicron hits UK service sector growth; German inflation highest since 1992 – business live

LIVE – Updated at 14:17

Activity weakened across UK services sector last month, as hospitality firms suffer cancellations and staff shortages.

US jobless claims rise: What the experts say:

Here’s Dan Boardman-Weston, CIO at BRI Wealth Management, on the rise in US jobless claims:

“Jobless claims came in at 207,000, 10,000 above consensus for the first week of January.

Whilst this is a slight negative, it’s worth noting that they remain at historically low levels and continue to show significant strength in the US labour market. This is likely to add further impetus for the Fed to raise rates faster or sooner than the market had been expecting.

Unless the rapid spread of Omicron starts to put the economy under significant pressure – which markets don’t expect will happen – then the stage looks set for continued economic growth and for monetary policy to become tighter over the coming months.”

Robert Frick, corporate economist at Navy Federal Credit Union, says the labor market isn’t being badly disrupted by Omicron:

“Weekly unemployment claims only ticked up for the latest week, showing the surge in Omicron cases hasn’t increased layoffs.

Given the surge is expected to drop significantly in the next month, and employers are clinging to the workers they have in the face of a record number of employees quitting, Omicron may not affect layoffs at all.”

US jobless claims rise but remain low

The number of Americans filing new claims for unemployment benefit has risen, but remains near to pre-pandemic lows.

There were 207,000 new ‘initial claims’ in the final week of December (up to 1st January), up from 200,000 in the previous seven days, on a seasonally adjusted basis.

Stripping out seasonal adjustments, the actual number of initial claims jumped by 57,599 to 315,469 last week, as some firms cut their workforces after the pre-Christmas rush.

Here’s some early reaction:


The jump in Germany’s consumer prices index to 5.3% in December, the highest level since June 1992, is “another inflation shocker” says Carsten Brzeski of ING:

He warns that inflation pressures will broaden, before easing later this year:

Higher gas prices have been passed on to most German households with the start of the new year. Based on personal anecdotal evidence, all kinds of administrative prices and even TV broadcasting prices have gone up. Add to this additional price-markups in the hospitality, culture and leisure sectors once the current round of restrictions is over and it is hard to see inflation coming down significantly any time soon.

It will take until late summer to see inflation slowing down to any significant degree, when lockdown-related price markups are over and negative energy price base effects kick in.

The year 2021 brought Germany the worst inflation surge since the early 1990s. Today’s inflation numbers should, in our view, mark the peak of the inflation surge. However, inflation is unlikely to come down in a straight line from here. Instead, inflationary pressures will first broaden further across sectors and goods before abating towards the end of the year.

Brzeski also points out that the all-time high of German inflation since reunification dates back to the summer of 1992, at 6.2%. For the entire year 2021, inflation came in at 3.1%, the highest since 1993.

German CPI inflation highest since 1992

Inflation in Germany has jumped to its highest rate in almost 30 years, as price pressures build in Europe’s largest economy.

Consumer prices jumped by 5.3% per year in December, statistics body Destatis reports, as the cost of energy (+18.3%), goods (+7.8%), food (+6%) and services (+3.1%) rose.

That’s an increase on the 5.2% inflation rate reported in November, and the highest since 1992. Prices rose by 0.5% in December alone.

Destatis said several factors had pushed up Germany’s inflation rate, including the end of last year’s temporary VAT tax cut, the rise in the oil price, and price increases across supply chains due to the pandemic.

On an EU-harmonised basis, Germany’s annual inflation rate was 5.7% last month — or almost triple the European Central Bank’s 2% target.

Energy boss says UK must find £20bn to ease soaring household bills

13:03 Rob Davies

The boss of one of the UK’s fastest-growing energy suppliers has said Britain must find £20bn to rein in soaring household bills that have compounded fears about a cost-of-living crisis in 2022.

Greg Jackson, the chief executive of Octopus Energy, said his company did not know yet how much bills would rise in the run-up to 7 February, the deadline when the regulator Ofgem sets a new cap on what suppliers can charge customers.

The record wholesale gas prices across Europe has led to forecasts that average annual bills in the UK could leap from £1,277 to more than £2,000 when the cap comes into effect in April.

Jackson said talks between energy suppliers and the government would have to find a way to avoid global gas prices being passed directly on to consumers.

“We’ve got to recognise that as a result of the pandemic, every sector is asking the Treasury for help and there’s not an infinite supply of money,” he said.

“The reality is that the UK buys most of its energy on a global market and we’ve had to pay about £20bn more than usual this year. So, in some way or another, the UK is going to have to pay that money.”

Related: Energy boss says UK must find £20bn to ease soaring household bills


The UK government is looking for a new competition watchdog chief.

Andrea Coscelli, chief executive of the Competitions & Markets Authority, says he will step down from the role at the end of his current term in July 2022.

Coscelli has run the CMA since 2016, having joined as an executive director when it was created in 2013, and says now is the right time to confirm he won’t seek another term.

The announcement came after Sky News reported this morning that Coscelli would step down later this year.

In its role protecting consumers and promoting competition, the CMA has blocked the merger of supermarkets Asda and Sainsbury’s, ordered JD Sports to sell trainer retailing rival Footasylum, and instructed Facebook owner Meta to sell gif website Giphy.

The CMA is also lacking a permanent chairman. Interim chair Jonathan Scott was reappoined in October, after former chair Andrew Tyrie quit saying the limits of his role prevented him leading a more aggressive campaign for change.

Related: Andrew Tyrie quits UK competition watchdog over ‘limits’ of role

Update: Labour MP Darren Jones, who chairs parliament’s Business, Energy and Industrial Strategy Committee, tweets:

World food prices hit 10-year high in 2021

World food prices surged by 28% during 2021 to their highest level in a decade.

The UN’s food agency reported today that the cost of all major food groups surged last year, as strong demand, supply chain problems, rising fertiliser costs and poor weather such as droughts and heatwaves all pushed up prices.

The Food and Agriculture Organization’s (FAO) food price index, which monitors the most globally traded food commodities, averaged 125.7 points in 2021, the highest since 131.9 recorded in 2011.

© Provided by The Guardian
UN food price index Photograph: UN Food and Agriculture Organization

Cereal prices jumped 27.2% year-on-year, with maize up 44% and wheat 31.3% pricier.

Vegetable oil surged 65.8% to an all-time annual high, dairy rose 16.9%, meat prices increased 12.7% and sugar rose 37.5%.

FAO senior economist Abdolreza Abbassian warned that market conditions are unlikely to stabilise this year.

“While normally high prices are expected to give way to increased production, the high cost of inputs, ongoing global pandemic and ever more uncertain climatic conditions leave little room for optimism about a return to more stable market conditions even in 2022.”

The cost of cereals, vegetable oil, and sugar did dip in December, but dairy prices rose.

UK services growth at 10-month low: what the experts say

New pandemic restrictions, supply shortages and Brexit trade frictions all slowed UK service sector growth last month, says Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:

“Uncertainty and volatility in the services sector returned at the end of last year with a sudden drop in demand and overall activity growth was the lowest since February 2021.

This not unexpected turn of events was the direct result of increased pandemic restrictions as the number of festive activities were reduced by covid-concerned consumers.

Ongoing Brexit customs delays and supply shortages also added to depressed activity in the sector. Exports orders were also affected by reduced international travel with sales falling for the first time since June 2021.

Martin Beck, chief economic advisor to the EY ITEM Club, says services firms bore the economic brunt of the rise of COVID-19 infections, the growing numbers of people isolating and increased consumer hesitancy:

This has prompted a significant fall in the services PMI to 53.6 in December from 58.5 in November. This was the lowest since February, although a little above December’s flash reading of 53.2.

Consumer-facing services firms, particularly in travel and hospitality, were particularly vocal in citing the adverse effects of the worsening COVID-19 situation.

Simon Lister of financial comparison website warns that firms also face rising prices, higher taxes, and supply chain disruption:

“The Omicron variant savaged the UK economy during December. Sadly the worst may yet be to come. The sheer number of hurdles facing UK businesses as they enter 2022 is frightening. It’s less a 110-metre than a 1010-metre hurdles race.

With skyrocketing energy prices and inflation, supply chain crises, rising interest rates and tax increases to come, the disconnect between stock markets and economic reality has been more extreme than ever in recent weeks. The Fed indicating that US interest rates could rise relatively soon has given markets a reality check and the months ahead could prove exceptionally turbulent as the grim economic fallout from the pandemic starts to bite.”


The oil price has risen back to its pre-Omicron levels, reflecting hopes that the Covid-19 variant will not badly hurt economic growth.

Brent crude hit $82 per barrel this morning for the first time since 25th November.

That was the day when six countries were placed under England’s red list travel restrictions due to concerns over the B.1.1.529 variant.

© Provided by The Guardian
The Brent crude oil price over the last three months Photograph: Refinitiv


Elsewhere in the markets, government bond prices are dropping as investors anticipate that central bankers will tighten policy this year to cool inflation.

That pushes up the yield, or interest rate, on government debt – as investors seek a higher return for holding sovereign bonds.

That could dampen risk appetite, because the drop in bond yields has been one factor pushing up riskier assets such as shares.

Bloomberg’s Lisa Abramowicz explains:

Video: Private Job Growth in December Shatters Expectations (Cover Video)

Private Job Growth in December Shatters Expectations

What to watch next



Back in the City, the FTSE 100 index is recovering some of its earlier losses.

British Airways parent company IAG is now among the top risers, up 2.6% to its highest since mid-November.

The travel sector should benefit from the scrapping of pre-departure tests for people travelling to England from tomorrow, amid hopes that the Omicron variant. Airline stocks surged earlier this week, amid confidence that the economic threat of the Omicron coronavirus variant was fading.

Bank stocks are also rising, as traders anticipate that they will benefit from rising interst rates (record low borrowing costs have squeezed their profit margins).

Standard Chartered (+3%), Lloyds Banking Group (+2.3%), HSBC (+2%) and NatWest (+1.8%) are in demand.

The FTSE 100 is now down 35 points at 7482, down 0.5%, recovering around half its early fall.


Load Error


10:49 Mark Sweney

Motorists paid £5m more a day for fuel than they should have last month after petrol station owners refused to pass on a drop in wholesale prices to consumers, the RAC has claimed.

The motoring organisation branded December a “rotten month” despite the price of unleaded petrol falling by 2p per litre, after estimating that petrol retailers should have reduced the cost by 12p.

The RAC said that instead of pocketing the traditional long-term margin of 6p a litre, retailers took an average of 16p a litre on petrol and 12.5p on diesel.

Across December, the RAC estimates that drivers collectively lost out on £156m, or £5m a day, from the wholesale price cuts not being passed on by retailers. More here.

Related: UK drivers overcharged by £5m a day for petrol, claims RAC


Eurozone factories continued to hike their prices in November, a sign that inflationary pressures are still building.

Prices at factory gates across the euro area rose by 1.8% month-on-month, statistics body Eurostat reports, and were 23.7% higher than a year ago.

Economists had forecast a 1.2% monthly rise.

Although steep, that’s a slowdown on the 5.4% jump in producer prices in October.

The energy crunch was the primary factor, with energy prices surging by 66% over the last year.

But costs rose elsewhere too — prices in total industry excluding energy increased by 9.8%. Intermediate goods (used in final products) jumped by 18.3%, followed by a 4.7% rise in durable consumer goods, 4.4% for capital goods and by 3.8% for non-durable consumer goods.

Firms hit by rush of cancellations

Customer-facing firms were hit by a rush of cancellations after the Omicron variant hit the UK, a new survey from the Office for National Statistics shows.

Around 45% of accomodation and food services firms reported a jump in cancelled bookings over the last month.

Many Christmas parties and other meet-ups were scrapped due to pandemic fears, or because attentees had caught Covid or were isolating.

Half of firms in the ‘other service activities industry’, which includes hairdressers and other beauty treatments, reported a rise in cancellations.

Consumers also kept away from the shops. In the week to 2 January 2022, overall retail footfall in the UK was 75% of the level seen in the equivalent week of 2019.

Firms are also short of staff, with 15% of businesses reporting a shortage of workers.

A third of accommodation and food services firms said they were understaffed, with two-thirds saying employees were working increased hours because of these worker shortages.

Plus, one in five working adults said they were working from home exclusively, up from 14% before. The survey took place from 15 December to 3 January.


10:21 Mark Sweney

M&C Saatchi, the advertising group that has worked with clients including the Conservative Party, O2 and Sky, has received a takeover approach from an investment company run by its deputy chairwoman.

London-listed shell investment firm AdvancedAdvT, set up and run by M&C Saatchi’s deputy chair and major shareholder Vin Murria, has made a “preliminary approach” with the intention to make a formal bid for M&C Saatchi “in the near term”.

AdvancedAdvT, which raised £130m last year to seek acquisition opportunities, acquired a 9.8% stake in M&C Saatchi on Wednesday saying the agency represented a “good investment opportunity”. Murria holds a 13% stake in AdvancedAdvT and is the company’s executive chairman.

The company said in a statement on Thursday.

“The Board of M&C Saatchi notes the recent press speculation and confirms that it has received a preliminary approach from AdvancedAdvT Limited, a vehicle connected with Vin Murria, a director of the company, which may or may not result in an offer for the company.

“No proposal has been received but the board has been told to expect one in the near term.”

Murria, who sold her company Advanced Computer Software for £725m in 2015, holds a 12.5% stake in M&C Saatchi. She became deputy chairman last year after the agency’s three founders were forced out following an accounting scandal.

Investment company Marwyn, which has previously owned Peppa Pig parent Entertainment One and the owner of, holds a 15.4% stake in the ad agency. M&C Saatchi’s share price hit a three-year high following the news of the potential takeover.


The emergence of the Omicron variant of coronavirus hit British businesses’ expectations for sales, jobs and investment last month, a Bank of England survey showed today.

The BoE’s Decision Makers’ Panel report showed companies expected output price inflation to hit 4.5% in the three months to December 2022, up from 4.2% in the November survey, Reuters reports.

Omicron pushes UK services growth to 10-month low

Growth across the UK services sector has slumped to a 10-month low, as the emergence of the Omicron variant slowed the UK recovery.

December was the worst month for the UK’s service economy since February 2021, in the last lockdown, according to data firm IHS Markit.

Services firms suffered a steep fall in spending on face-to-face consumer services, escalating business uncertainty and disruptions due to staff absences as Covid-19 continued to hit the economy.

This pulled the UK services PMI down to 53.6 in December, from 58.5 in November.

That shows the weakest growth since the rebound from lockdown measures began last spring, as consumer caution and the tightening of restrictions under the government’s “plan B” slowed activity.

© Provided by The Guardian
UK services PMI Photograph: IHS Markit

On a more positive note, job creation remained relatively strong, cost pressures eased from November’s peak and output growth expectations improved slightly.

But it’s clear that the UK economy took a knock last month, as Omicron hit hospitality firms and many office staff worked from home.

© Provided by The Guardian
UK composite PMI Photograph: IHS Markit

Tim Moore, economics director at IHS Markit, says:

“December data revealed a severe loss of momentum for the UK economy as many customer-facing businesses experienced a drop in demand due to escalating COVID-19 cases.

Total new orders in the service sector increased at the weakest pace for 10 months. Mass cancellations of bookings in response to the Omicron variant led to a slump in consumer spending on travel, leisure and entertainment. Survey respondents also noted that renewed pandemic restrictions had slowed the recovery in business services.

Firms are still confident about the longer-term business outlook, with 55% of the those surveyed expecting a rise in output during 2022 as a whole, while only 10% expect a decline.

But costs are still rising, which will hit consumers in the pocket this year:

“The inflation outlook appeared to improve as input prices increased at the slowest pace for three months. Survey respondents again commented on considerable pressure from energy, fuel and staff costs.

Output charge inflation eased only slightly from November’s record high, however, as many businesses cited the need to pass on escalating costs to clients over the course of 2022.”

Greggs seeing impact of Omicron

The chief executive of British food-to-go retailer Greggs said surging cases of Omicron were putting pressure on its store staff, but it was manageable from a business perspective.

“It’s disruptive and it creates problems for our people,” Roger Whiteside said in an interview on Thursday, Reuters reports.

“It is the impact on the people I’m mostly concerned with, rather than the impact on the business per se, because it’s still a manageable number from that perspective.”

Semiconductor shortages hit UK car sales in 2021

Britain’s car industry has recorded its second worse year for sales since 1992, as the pandemic and chip shortages hit the sector.

Industry body the SMMT has reported that new car registrations grew by just 1% last year, with 1.65m new cars entering the UK market. That’s 28.7% less than in 2019.

The year ended on low note too — new registrations in December fell by 18.2% compared with the previous year.

Sales were held back by the global semiconductor shortages, which meant fewer models were available (which also drove up second hand car prices last year).

Mike Hawes, SMMT chief executive, said:

“It’s been another desperately disappointing year for the car industry as Covid continues to cast a pall over any recovery.

Manufacturers continue to battle myriad challenges, with tougher trading arrangements, accelerating technology shifts and, above all, the global semiconductor shortage which is decimating supply.

© Provided by The Guardian
UK car sales Photograph: SMMT

But there was one bright spot in the gloom — demand for electric vehicles jumped, with more battery electric vehicles registered in 2021 than over the previous five years combined.

As my colleague Jasper Jolly writes:

Reflecting growing appetite for greener vehicles, sales rose from 108,000 in 2020, when battery-powered cars accounted for just 6.6% of new cars bought in Britain. In December 2021 alone, electric cars made up 26% of sales, a record for a single month when physical dealerships were allowed to open during the Covid pandemic.

Related: Carmakers report booming UK sales of electric vehicles

Full story: Next rings up bumper Christmas as online sales surge boosts profits

09:06 Sarah Butler

Next rang up £70m more sales than expected over Christmas as a surge in online orders of party dresses and occasionwear made up for lower trade in stores, my colleague Sarah Butler writes.

The fashion and homewares chain is the first retailer to report its Christmas trading results, potentially giving an indication of how the high street fared in the biggest sales period of the year.

The group said it now expected to make £822m in annual profits, £22m more than previously hoped for and almost 10% ahead of pre-pandemic levels, in its fifth increase in guidance in less than a year.

In the eight weeks to Christmas Day, Next said its sales rose 20% on 2019 – before the pandemic – despite suffering “materially lower” levels of stocks than it had hoped for while its delivery service had struggled because of labour shortages in its warehouses and distribution networks.

The company said in a statement.

“The fact that our sales remained so robust in these circumstances is, we believe, testament to the strength of underlying consumer demand in the period,”

The group’s strong performance was underpinned by an 85% surge in full-price online sales compared with 2019 at its Label business which sells brands such as Ted Baker, Nike and Mint Velvet. Online sales of Next goods in the UK and overseas were also up by more than 30% in the three months to 25 December while sales in its UK and Irish stores fell 5.4%.

However, Next warned of a “tougher environment” for the year ahead despite assuming no further disruption from the Covid pandemic. The company said it was unclear how much it had benefited from shoppers spending their savings built up during lockdowns and whether a return to spending on holidays and other social activities would hit sales of non-essential goods such as clothing.

You can read more here:

Related: Next rings up bumper Christmas as online sales surge boosts profits


Growth at eurozone construction firms slowed last month, as builders continued to suffer from shortages of materials.

Data firm Markit’s eurozone construction PMI, which tracks activity in the sector, dropped to 52.9 in December from 53.3 in November, showing a slowdown.

Firms reported a rise in new orders, as projects on hold due to the pandemic resumed. But cost burdens continued to rise, and confidence about the outlook weakened.

Usamah Bhatti, economist at IHS Markit, explained:

“The upturn in the eurozone construction sector extended into its third month at the end of 2021, as businesses reported a solid, albeit softer rise in activity.

Positively, growth in new business quickened to the steepest in nearly three years, as new projects came to tender amid sustained government support for the sector. That said, firms continued to report widespread shortages of raw materials across the bloc and beyond, which placed continued strain on supply chains and cost burdens.

© Provided by The Guardian
Eurozone construction PMI


© Provided by The Guardian
The B&M Home Store in Slough

Discount retailer B&M has also lifted its profits guidance, after a strong Christmas.

B&M says it benefitted from importing products from abroad early, which paid off when retail spending jumped in October and November as consumers brought forward their Christmas spending.

Simon Arora, B&M’s chief executive, said,

“The Group has delivered a very strong Golden Quarter, with our two-year like-for-like performance demonstrating strong retention of new customers.

Our decision to take receipt of imported Christmas stock early in the season meant we were able to provide customers with great products at great prices.

B&M now expects earnings this financial year to hit £605m to £625m, ahead of the current analysts’ consensus estimate of £578m.

Although B&M’s like-for-like sales in the three months to Christmas Day fell 6.2% year-on-year, they were still 14% higher than two years ago, before the pandemic.


Other European markets have also opened lower, with Germany’s DAX dropping 1% and France’s CAC losing 1.1%.

FTSE 100 drops

In the City, the FTSE 100 has fallen by nearly 1% as investors react to the prospect of earlier US interest rate rises.

The blue-chip index has dropped by 67 points to 7450 points, after last night’s US Federal Reserve meeting minutes showed the central bank may raise interest rates sooner than expected.

Consumer credit report firm Experian (-3.5%), software developer Aveva (-3%), analytics firm Relx (-3%), and tech-focused investment trust Scottish Mortgage (-2.9%) are the top fallers, pulling the FTSE 100 away from the 22-month high touched on Wednesday.

Most stocks are lower, although banks (which benefit from higher interest rates) are bucking the selloff. Lloyds Banking Group has gained 0.6%. Mining stocks are also a little higher.

Greggs appoints Roisin Currie as CEO

Greggs has also appointed a new chief executive, to replace long-serving CEO Roger Whiteside.

Roisin Currie, Greggs’ retail and property director, will succeed Whiteside in May.

In her current role Currie runs Greggs’ retail operations, developing its shop estate and its home delivery partnership with Just Eat.

Whiteside has led Greggs since 2013, expanding its store estate, adding new ranges, and growing the share price from below £5 in 2013 to over £33 last night.

© Provided by The Guardian
Greggs share price over the last decade Photograph: Refinitiv

Ian Durant, Greggs chairman, says:

“Roisin has played a central role in the success of Greggs as it has developed as a multi-channel food-on-the-go business and I am delighted that she will lead the next phase of our growth as Chief Executive.

She has deep experience of our culture and our strategic plan, and will lead with energy and character. Roger Whiteside has been an outstanding Chief Executive and I wish him well for the future. Roisin and I look forward to working with Roger to ensure a smooth transition. “

6.7m mince pies help Greggs lift expectations

© Provided by The Guardian
A Christmas themed window display at a branch of Greggs bakery chain in London, Britain. Photograph: May James/Reuters

Bakery chain Greggs has predicted its full year trading will be “slightly ahead” of previous expectations, despite the impact of omicron on high street stores.

Greggs, which sells sausage rolls, sandwiches and cakes from over 2,000 stores, has reported a 0.8% rise in like-for-like sales for its fourth quarter compared to two years ago.

Like-for-like sales in the last quarter of 2021 were 0.8% higher than two years ago, despite the move back to home working at the end of last year.

Greggs says it saw:

a strong performance in October being followed by more challenging conditions as consumers responded to precautionary messages relating to the new coronavirus variant.

Christmas food was popular — with Greggs selling 6.7m shop-baked mince pies over the festive season.

Our range continues to evolve in line with changing consumer tastes and dietary choices so the launch of our new Vegan Festive Bake was a natural next step.

Like many food retailers, Greggs also faced staff and ingredient shortages, which drove up costs (it warned in October).

Today it says:

The fourth quarter results were achieved against a backdrop of continued disruption to staffing and supply chains.

Our teams across the business have done a magnificent job coping under difficult circumstances and in recognition of this we brought forward the planned 2022 pay awards for our operational teams by five months.

Next beats sales forecasts in strong Christmas

© Provided by The Guardian
A store of clothing retailer Next in London Photograph: May James/Reuters

British clothing retailer Next has lifted its full-year profit outlook again after beating its sales guidance in the crucial Christmas trading period.

Next’s full price sales in the eight weeks to Christmas Day jumped 20% compared with two years ago (before the pandemic), which is £70m ahead of its previous guidance.

Next has now lifted its full year profit before tax guidance by £22m to £822m — which would be 9.8% higher than two years ago. It now expects full price sales growth of 12.8% versus 2019/20, £70m ahead of previous guidance.

A “ strong revival” in NEXT branded adult formal and occasionwear boosted sales, it says, and helped it ride out the UK’s supply chain problems.

In the run up to Christmas our stock levels were materially lower than planned. We also experienced some degradation in delivery service levels as a result of labour shortfalls in warehousing and distribution networks.

The fact that our sales remained so robust in these circumstances is, we believe, testament to the strength of underlying consumer demand in the period.

Inroduction: Markets jolted as Fed hints at earlier rate rises

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

Stock markets are taking a tumble today after America’s central bank revealed it could raise interest rates sooner or faster than expected, to tame US inflation.

The minutes of the Federal Reserve’s December meeting, released last night, shows that Fed officials were concerned about America’s “elevated levels of inflation”, and considering normalising monetary policy faster to combat rising prices.

In a hawkish turn, the Fed minutes say:

Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.

Officials pointed to America’s “increasingly tight labor market”, and the jump in prices which they attributed to supply and demand imbalances and the reopening of the economy. US inflation hit 6.8% in December, its highest since 1982.

Related: US inflation rate rose to 6.8% in 2021, its highest since 1982

Some policymakers also argued the Fed could stat to cut the size of its balance sheet “relatively soon” after beginning to raise the federal funds rate. It’s currently on track to end its pandemic stimulus bond-buying programme in March.

The minutes spooked Wall Street, sending the tech-focused Nasdaq Composite down by over 3% in its biggest one-day drop since February.

A strong US jobs report (US companies added 807,000 employees in December) also fuelled expectations that the Fed could normalise policy faster.

Ipek Ozkardeskaya, senior analyst at Swissquote, explains:

Yesterday has been a deep red day for the US equities, as the FOMC minutes hinted at earlier and a faster rate normalization path, and the reduction of the Fed’s balance sheet soon after the first rate hike. The extra hawkish element hammered the sentiment sending the US yields higher and the equities lower. The better-than-expected ADP data certainly gave an extra support to the Fed hawks.

The ADP data revealed that the US economy added more 800K new private jobs in December, twice the 400K expected by analysts, and as strong as the figures we used to see at the heart of the post-pandemic recovery last year. But helas, the strong data added to the hawkish Fed expectations, as it reinforced the Fed’s view that the US economy is close to a full employment and it’s time to move on.

We are now stepping into a period where good data is bad as it fuels the Fed hawks, and bad data is bad, as well, because it can’t fuel the Fed doves.

Asia-Pacific markets have followed Wall Street’s lead, with Japan’s Nikkei sliding 2.9%.

Britain’s FTSE 100 index is down over 1% in the futures market, while European stock futures have dropped nearly 2%.

There’s a flurry of economic data ahead, which will show how the UK service sector, car dealers and eurozone builders fared last month as the omicron wave hit. We also get the latest US jobless claims report.

The agenda

  • 8.30am GMT: Eurozone construction PMI report for December
  • 9am GMT: UK car sales for December
  • 9.30am GMT: UK service sector PMI report for December
  • 9.30am GMT: ONS publishes weekly economic activity and business insights report
  • 1pm GMT: German inflation rate for December
  • 1.30pm GMT: US weekly jobless claims
  • 1.30pm GMT: US trade report
  • 3pm GMT: US factory orders

Source: Thanks