LIVE – Updated at 16:23
Federal Reserve chair Jerome Powell is appearing for a confirmation hearing at the Senate, as prices across the OECD jump at the fastest pace since 1996.
Flexible working is here to stay….
The Fed will, in all likelihood, start to normalise policy by raising US interest rates this year, Jerome Powell tells the Senate committee — with officials predicting three hikes in 2022, on average.
He explains that the US economy doesn’t need, or want, highly accommodative monetary policy.
So, the Fed could also possibly start to shrink its balance sheet later this year — reversing some of the bond-buying stimulus it has conducted since the pandemic began, which is due to end in March.
Bankrate’s Sarah Foster has the details:
Powell: Omicron will only have shortlived impact on jobs and growth
Powel tells the committee that Omicron will only have a “shortlived” impact on employment and economic growth .
He explains that the fast-spreading Covid-19 variant may lead to a pause in hiring and growth in the near term, but the outlook could be very positive once infections have subsided.
Interestingly, Jerome Powell tells Senators that inflation poses a threat to the Fed’s goal of maximum employment.
Achieving full employment requires price stability, he explains — a sign that the Fed could claim that interest rate hikes would protect the jobs market?
Inflationary pressures are likely last well into this year, says Jerome Powell — after creating brief confusion by referring to next year (it’s 2022, sir!).
Jerome Powell is being grilled about the Fed’s performance controlling inflation
Q: Why did you say inflation would be transitory, and why does the US have higher inflation than other countries?
Powell explains that the pandemic has created a unique set of circumstances. The Fed, like other central banks, expected inflation to drop back faster than it has done, and didn’t expect goods prices to be so strong.
He points out that we’re not seeing a lot of progress resolving supply chain problems – one cause of higher inflation.
Jerome Powell has been challenged to restore trust in the Federal Reserve, after it emerged that some senior officials had traded assets early in the pandemic.
Last night the Fed announced that vice-chair Richard Clarida was stepping down a couple of weeks early, after it emerged he had been more active in financial markets in 2020 than he first divulged.
Two other senior officials, Eric Rosengren and Robert Kaplan, who ran the Boston and Dallas Fed’s respectively, stepped down last autumn after revelations about their financial trading in 2020, when the Fed was intervening to stabilise the financial system and protect the economy.
Jerome Powell also risks a joke, telling the Senate committee that his five siblings are all watching ‘or will later claim to have watched’ his testimony (an ad-lib that wasn’t in the prepared testimony).
Powell pledges to prevent higher inflation from becoming entrenched.
Federal Reserve chair Jerome Powell is appearing before the Senate Banking Committee for a confirmation hearing today, after being nominated for a second term by President Biden.
In his prepared testimony, Powell explains that the Covid-19 virus caused the fastest and deepest downturn in the US economy on record, risking a full-scale depression.
But, Congress’s stimulus packages, the Fed’s own actions, vaccines and “American resilience” cushioned the pandemic’s economic blows and sparked a historically strong recovery.
Today the economy is expanding at its fastest pace in many years, and the labor market is strong.
But with that recovery comes the highest inflation rate since the early 1980s, hitting households as the cost of energy, food, goods and services rises.
And Powell says the Fed will act to prevent higher inflation from becoming entrenched, while also supporting jobs (the Fed’s dual mandate is to deliver low unemployment and price stability).
We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing, and transportation. We are strongly committed to achieving our statutory goals of maximum employment and price stability. We will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.
We can begin to see that the post-pandemic economy is likely to be different in some respects. The pursuit of our goals will need to take these differences into account. To that end, monetary policy must take a broad and forward-looking view, keeping pace with an ever-evolving economy.
Fed officials have predicted that US interest rates will rise three times this year – some Wall Street banks predict they could be four hikes.
OECD inflation surges to 25-year high
Inflation across the OECD area has hit its highest level in 25 years, as consumers across the world are hit by the cost of living squeeze.
Consumer prices in the 38 richer countries which make up the OECD surged to 5.8% per year in November, the highest since May 1996.
Energy prices were the primary factor, soaring by 27.7% in the OECD area in the year to November. That was a sharp jump on October’s 24.3% rate.
Food price inflation in the OECD area jumped to 5.5% per year in November, up from 4.6% in October.
The OECD says:
Excluding food and energy, OECD year-on-year inflation rose more moderately, to 3.8%, compared with 3.5% in October, though it contributed significantly to headline inflation in a number of large economies.
Inflation rose particularly sharply in the US, where the CPI index hit 6.8% in November, the highest in almost 40 years, putting pressure on the US Federal Reserve to raise interest rates several times this year.
Inflation in Germany rose to 5.2%, a 29-year high — which may have spurred new Bundesbank president Joachim Nagel to call for vigilance about eurozone inflation this morning.
In the UK, CPIH (Consumer Prices Index including owner occupiers’ housing) jumped to 4.6%, which is the measure the OECD uses. The CPI index, which is targeted by the Bank of England hit 5.1%, prompting the UK’s central bank to raise interest rates last month.
The OECD’s 38 members are: Austria, Australia, Belgium, Canada, Chile, Colombia, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.
Bus services in England face axe as end to emergency Covid funding looms
Back in England, bus services in England used by hundreds of thousands of passengers are poised to be slashed when emergency Covid funding expires at the end of March, transport authorities have warned.
Passenger numbers on buses have dropped sharply from 80% of pre-pandemic levels to less than 60% since the rise of the Omicron coronavirus variant and the introduction of work-from-home advice in December, leaving firms reliant on recovery grants to run services.
Bus firms, which have to give six weeks’ notice to withdraw a route, are compiling lists of services to be scrapped after 31 March.
Many services depend on local council subsidy in places where bus operators cannot make a profit. But authorities now do not expect to find money to maintain such routes, typically serving isolated communities or hospitals and running outside peak hours.
Buses in regions whose budgets have to cover fixed-cost transit systems, such as Tyne and Wear which has the Metro, are expected to be hardest hit.
The funding crisis comes amid a driver shortage, affecting buses as well as the HGV and logistics sector. About 6,700 bus drivers are needed, with roughly 10% of positions vacant, according to the bus industry group, the Confederation of Passenger Transport (CPT).
Here’s the full story:
Wall Street has opened slightly lower, as investors fret that US inflation will rise to a new 38-year high when December’s CPI report is released tomorrow.
The S&P 500 index of US stocks has dipped by 15 points, or 0.33%, while the Nasdaq composite index is down 0.2% — a day after shares tumbled then rebounded.
Energy stocks are higher, following the rise in the crude oil price today, while the weakest sectors are real estate, consumer staples, tech, industrials and materials.
The jump in OECD inflation highlights the pressure on central banks to raise interest rates or dial back their economic stimulus.
Walid Koudmani, market analyst at financial brokerage XTB, explains:
“Figures for consumer prices in the 38 countries comprising the OECD surged to 5.8% per year in November, the highest since May 1996 with Energy prices being the main factor, rising by 27.7%.
This continues to reinforce the narrative that central banks are under increasing pressure to take action in order to alleviate this extreme rate of inflation.
While significant changes may take some time, investors seem to be taking these figures and the language used by central banks more seriously which has led to an increase in volatility across markets as they try to anticipate their future decisions.”
Nickel prices have jumped today, highlighting the inflationary pressures in the economy.
Benchmark nickel prices on the London Metal Exchange touched their highest in over seven years, with a temporary power outage at the LME also hampering trading in industrial metals.
Benchmark three-month nickel was up 3.3% at $21,490 a tonne just after 1pm, its loftiest since May 2014, Reuters reports, adding:
Prices for stainless steel, where most nickel supply is used, jumped as producers cut production to carry out maintenance.
Output is also expected to be curbed by Spring Festival holidays and the Beijing Winter Olympics because industries have been asked to lower output during the Games.
UK professional workers set for pay increases
Professional staff in the UK are set to see substantial pay rises this year, as companies bouncing back after the Omicron-slowdown fight to recruit employees or hold onto staff.
The Robert Walters 2022 UK Salary Guide shows today that professional services firms are planning to increase their budget for pay raises by 10-15% this year.
That’s the largest increase seen since 2008, and well ahead of UK inflation which is expected to rise over 5% in coming months.
The biggest pay rises will be reserved for new starters, as firms try to recruit employees.
At least 5% of the increase in payroll budgets will be reserved for existing employees in 2022, according to the recruitment firm (which reported strong results this morning).
These pay raises are expected to be for workers across all seniority levels – from entry-level workers and temporary staff right through to management level and executives.
Here’s are the key points from the Salary Guide:
- Payroll budgets to increase by +10-15% this year, the largest increase seen since 2008
- New starters salaries increased by 6-15% in 2021, whilst pay for existing employees remained flat
- 43% of companies planning pay rise for existing employees to match wages of new starters
- Over a third of businesses (39%) plan to increase pay to keep up with rising inflation
- Excellent compensation & benefits (65%), desirable bonus scheme (53%), and job security (40%) ranked most important by professionals looking for work this year
- Half of professionals claim they don’t ask about flexi-working in an interview as they assume “it is a given.”
Chris Poole, managing director at Robert Walters UK, explains:
“Wage increases above market value for in-demand hires was a recurring theme of the past year. As a result, we saw new starter salaries outstrip those of existing employees.
“The consequences of this will result in ‘wage compression’ – where existing employees feel their additional experience at the company (over new starters) is no longer valued or has not grown in value over the past two years.
“Looking at the year ahead we will see more companies raise the pay of their existing employees to sit in line with new starter salaries.”
WEF’s Global Risks report also identifies cyberattacks as a serious threat, points out Associated Press:
“We’re at the point now where cyberthreats are growing faster than our ability to effectively prevent and manage them,” said Carolina Klint, a risk management leader at Marsh, whose parent company Marsh McLennan co-authored the report with Zurich Insurance Group.
Cyberattacks are becoming more aggressive and widespread, as criminals use tougher tactics to go after more vulnerable targets, the report said. Malware and ransomware attacks have boomed, while the rise of cryptocurrencies makes it easy for online criminals to hide payments they have collected.
While those responding to the survey cited cybersecurity threats as a short- and medium-term risk, Klint said the report’s authors were concerned that the issue wasn’t ranked higher, suggesting it’s a “blind spot” for companies and governments.
Update: WEF are right to warn about the risks of complacency from cyber risks, says Jocelyn Paulley, partner at the law firm Gowling WLG:
This warning has implications for the extent to which groups containing multiple brands, business types and customer groups take a centralised and in-depth approach to preventative cyber-security measures and training.
The reputational and financial fallout of not addressing this before an incident hits is evident here and the WEF’s warning embodies the fact that reacting after the event may not be enough to claw back a hard-won customer following.”
The Wellcome Trust, Britain’s biggest charity, is ramping up spending on science research to £16bn over the next 10 years, with a focus on funding next-generation Covid-19 vaccines, after it reaped the highest investment returns in a quarter of a century.
Wellcome said it was making its biggest funding commitment to science and health in its 85-year history. It was created by the will of the pharmaceuticals entrepreneur Sir Henry Wellcome in 1936. The £16bn promise comes after it spent more than £9bn on research grants and other charitable activities over the past decade, including £1.2bn last year alone.
The trust made a 34.5% return in the year to 30 September on its investment portfolio, which is now worth £38.2bn, about £10bn more than a year ago. This is its best performance since it was created in its present form as an independent charitable foundation in 1995, when Wellcome plc was sold off to the drugmaker Glaxo, which later became GlaxoSmithKline.
One of Wellcome’s top investment picks was DoorDash, a US-based food delivery business, which doubled in price since its stock market flotation in December.
New Bundesbank chief warns of inflation risks
Germany’s new central bank chief has warned that eurozone inflation could remain elevated for longer than expected.
Joachim Nagel struck a hawkish tone as he was sworn in as the new Bundesbank president in Frankfurt this morning, saying the current high inflation rates are not entirely due to special, temporary effects.
Nagel, who succeeds Jens Weidmann, urged his colleagues at the European Central Bank to be vigilant.
While Nagel acknowledged that temporary factors are partly to blame for current pressures, he also called the medium-term outlook “exceptionally uncertain.”
“It’s true that prices could rise less than estimated in projections,” he said.
“However, I currently see a greater risk that inflation rates could remain elevated for longer than currently expected. In any case, monetary policy must be on guard.”
Eurozone inflation is estimated to have hit 5% last month, the highest since the euro was introduced, driven by the surge in energy costs, and also pricier food and goods.
The ECB has forecast that inflation will fall slightly below its 2% target by the end of 2022 and stand at 1.8% in 2023 and 2024. It will end its pandemic stimulus programme in March, but is pressing on with another bond purchase programme and shows no sign of lifting interest rates from their current record low of 0% soon.
WEF warns of risks from Space Race
The burst of interest in space from countries and companies risks exacerbating global tensions, as the dangers of militarization of space rise.
So warns the World Economic Forum in today’s Global Risks report, which points out that space is getting busier, with a record number of launches last year.
Businesses, start-ups and research entities are driving down launch costs particularly in the Low Earth Orbit (LEO) orbits, it explains.
Companies are looking to provide direct-to-consumer broadband access via space, and also examining opportunities such as “hyperspectral remote sensing” to analyse the earth, energy generation, manufacturing, mining and tourism.
While early space activity was conducted or funded by the public sector, the last decade has seen growing private investment, the report points out, adding:
New commercial entrants are disrupting traditional incumbents’ control in delivering satellite services, especially in internet-related communications or launch services.
Some governments are encouraging private space activity to further national “territorial” claims or to foster the development of high-value jobs, especially in the zone of Low Earth Orbit (LEO) or Medium Earth Orbit (MEO), as well as enhancing their military or defence-oriented presence.
This increase of space carries the risk of congestion and an increase in space junk, and a danger of collisions in a realm where dated space governance frameworks are coming under considerable pressure.
The report says:
A greater number and diversity of actors operating in space could generate new or exacerbate old frictions if not responsibly managed.
Carolina Klint, Marsh’s Risk Management Leader for Continental Europe, says the “diversification of actors” is an exciting development, but warns that dated space governance frameworks are coming under considerable pressure:
In a blogpost on today’s report, Klint explains:
Growing security concerns, increased competition among global communications providers and leisure flight operators, weapons tests, the threat of harmful space debris, and nation-state pride may disrupt commercial and scientific endeavours, increase geopolitical tensions, and threaten future cooperative efforts around governance.
Klint also warns the junkyard of space debris poses a threat to global communication networks and space travel.
Last month, Elon Musk denied that his Starlink satellites were taking up too much room in space, after the head of the European Space Agency claimed the US billionaire was “making the rules” himself.
And in late December, China accused the US of ignoring international treaty obligations and engaging in irresponsible and unsafe conduct in outer space after two near misses between the Chinese space station and Starlink satellites operated by Musk’s SpaceX company.
WEF’s report also flags that national space ambitions also bring a growing risk of the militarization of space, as the current gaps in space governance make arms races even more likely.
The US military created a Space Force as a separate branch of its armed services in 2019, while Japan’s Space Operations Squadron and the United Kingdom’s Space Command were both created in the last two years.
Other leading armed forces also now typically include a space component—for instance, in 2021, the French Air Force became the Air and Space Force (Armée de l’Air & de l’Espace).
In November of 2021, an anti-satellite weapons test conducted by Russia created significant debris and threatened astronauts on the ISS. Other countries have conducted similar testing, raising the spectre of repeat occurrences from other nations, which would add considerably to the problem of space debris.
A hypersonic weapons arms race also risks contributing to the militarization of space—China, Russia and the United States are all developing such weapons and each tested them in the second half of 2021.
Environmental threats dominate global risks this decade
The top threats to the global outlook over the next decade are all environmental concerns, WEF’s global risk report shows.
Failure to act on climate change was the biggest global risk, followed by extreme weather and biodiversity loss.
Natural resource crises and human environmental damage also featured in the top 10 risks over the next 10 years, along with social cohesion erosion, livelihood crises, infectious diseases, debt crise” and geo-economic confrontations.
The report explains:
For the next five years, respondents again signal societal and environmental risks as the most concerning.
However, over a 10-year horizon, the health of the planet dominates concerns: environmental risks are perceived to be the five most critical long-term threats to the world as well as the most potentially damaging to people and planet, with “climate action failure”, “extreme weather”, and “biodiversity loss” ranking as the top three most severe risks
Covid has undermined fight against global heating, says WEF
Scars left by the Covid-19 pandemic have deepened the global divide between rich and poor countries and will make it harder to find common cause in the fight against global heating, according to the World Economic Forum.
A WEF report puts climate or environment-related threats in the top five slots in its list of the 10 long-term risks but warned a “vaccine divide” was making collaboration to limit temperature increases more difficult.
In its annual global risks survey, just released, the WEF – which has postponed its annual meeting in Davos until the summer because of the rapid spread of the Omicron variant – said the mood among its members was downbeat.
Only 16% of those who responded to the survey said they were optimistic about the outlook for the world, and just 11% believe the global recovery will accelerate. Most respondents envisaged the next three years to be marked by either volatility and shocks or by a widening of the gap between winners and losers.
Saadia Zahidi, the WEF managing director, said:
“Health and economic disruptions are compounding social cleavages. This is creating tensions at a time when collaboration within societies and among the international community will be fundamental to ensure a more even and rapid global recovery.
“Global leaders must come together and adopt a coordinated multi-stakeholder approach to tackle unrelenting global challenges and build resilience ahead of the next crisis.”
Full story: Heathrow demands end to Covid testing for vaccinated
Heathrow airport has said at least 600,000 passengers cancelled their travel plans from the airport in December because of Omicron, warning aviation would take years to recover from the pandemic.
Only 19.4 million passengers passed through the airport in 2021 – less than a quarter of 2019 levels and below even 2020, the year when the Covid-19 pandemic started in March.
Heathrow said passengers cancelled their travel plans last month because of the Omicron variant and the uncertainty caused by swiftly imposed government travel restrictions.
The UK’s busiest airport again urged the government to remove all testing requirements for fully vaccinated passengers and to adopt a playbook for any future variants of concern that is more predictable. Here’s the full story.
Bloomberg points out that Heathrow’s long-distance passenger numbers were hit particularly hard in 2021, pulling down total passenger traffic by 12% year-on-year.
The U.K. hub, the busiest in Europe in normal times, catered to 19.4 million passengers in 2021, it said Tuesday in a statement. Long-distance services were particularly hard-hit, with passenger counts falling 40% to the Asia-Pacific region, where Covid-zero policies have led to extended lockdowns.
The emergence of the omicron variant and ensuing patchwork of border restrictions drove away at least 600,000 passengers in December, the airport said. While travel got a boost after the U.K. eased some curbs last week, passenger counts last year were less than one-quarter of 2019 levels and below 2020.
Pound at two-month high vs US dollar
The pound has hit its highest level against the US dollar in over two months.
Sterling hit $1.3619 this morning, despite the impact of omicron on economic sectors such as travel.
That’s the pound strongest level against the dollar since 4th November — the day when the Bank of England surprised the City by not raising interest rates that day.
The pound also hit its highest level since February 2020 against the euro yesterday, at almost €1.20.
Rising inflation expectations have pushed the pound up recently, as traders anticipate the Bank of England could hike interest rates as soon as next month, having already lifted rates to 0.25% in December.
ING’s developed markets economist James Smith says it’s a close call, as omicron will hit growth this winter.
“Will the Bank of England hike rates again at the start of February? Markets think the answer is yes. We narrowly reckon the committee will wait until May, though February’s meeting is looking much more 50:50 than it did just a few weeks ago.
“Partly, that’s because it looks like Omicron’s economic damage will be neither huge nor long-lasting.
“True, staff shortages are a pressing issue for most firms, while the latest card spending data shows social spending fell off a cliff in late December. There’s a decent case for waiting for more data, as the committee did last November, and that’s why we’re still leaning towards a rate hike in May. A negative December and January GDP reading look likely.
European stock markets have opened higher after a turbulent Monday.
The UK’s FTSE 100 has gained 0.45% to 7,477 points, towards last week’s 22-month highs.
The pan-European Stoxx 600 is 0.75% higher, recovering around half yesterday’s fall, with investors relieved that the New York stock market staged a late recovery last night.
Oil is also stronger, with Brent crude up 1% at $81.73 per barrel
Victoria Scholar, head of investment at interactive investor, says:
“As well as equities, oil is catching a bid on the back of firmer risk appetite after a challenging start to the year. WTI and Brent crude are both up by around 1% with the benchmarks trading around $80 a barrel. A softer US dollar is also buoying energy prices as the markets await a slew of Fed speakers this week.
Amid a backdrop of improving demand fundamentals and contained supply from OPEC, the near-term outlook continues to look optimistic. However the threat of further variants or more hawkish than expected tones from the Federal Reserve may limit potential upside.”
Shares in cybersecurity specialist Darktrace have surged by around a fifth this morning after it lifted its revenue and profit forecasts.
Darktrace, which uses artificial intelligence algorithms to spot and neutralise cyber-attacks on companies, says it’s seen significant growth in the first half of its financial year, with stronger than expected sales.
Customer numbers grew almost 40% year-on-year, to 6,531 — typically private sector firms keen to avoid losing precious data or facing extortion threats.
Cathy Graham, CFO of Darktrace, said:
In December, we delivered the first module of our new Prevent product line to early adopters. This is the next logical step in fulfilling our vision of creating a Continuous AI Loop, a virtuous circle that equips customers with a suite of technologies that strengthen and reinforce each other.
The power of our innovative underlying technology, Self-Learning AI, enables us to expand our ability to protect organisations from the cyber threats of today and tomorrow.”
Shares have popped 18% to 465p.
Darktrace’s floated on the stock market at the end of April at 250p per share, immediately surged 40%, and hit £10 in September. But it then fell back to 400p, as a lock-up on insiders selling shares ended, and analysts at Peel Hunt questioned its products’ usefulness.
Recruiter Robert Walters boosted by hiring pick-up
Recruitment firm Robert Walters has reported that business picked up at the end of last year, as firms looked to hire more staff.
Net fee income jumped by 33% year-on-year in the final quarter of 2021, including a “record December performance” (suggesting Omicron didn’t have an immediate impact on hiring).
Fee income in the UK rose by 7% with a shortage of candidates leading to “heightened competition for talent” in both London and the regions. Legal, commerce finance and technology sectors were particularly active, it says.
Fee income surged 48% in Asia-Pacific markets, with Indonesia, Hong Kong, Singapore, mainland China, Japan and Australia all seeing strong net fee income growth.
Robert Walters, the company’s chief executive, says:
We are seeing candidate shortages across all locations and disciplines, a fierce competition for talent and wage inflation kicking in which together create huge opportunities across the recruitment market.
Following a strong quarter including a record December, trading is now comfortably ahead of current profit expectations, Walters adds.
Analyst: High hopes of a 2021 recovery dashed for Heathrow
Today’s Heathrow travel stats show that hopes of a 2021 recovery have been dashed, says Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
Mass vaccination programmes failed to have the desired effect in 2021, in bringing the rebound in travel there had been such high hopes for this time last year.
The web of rules and regulations which was spun across different countries and regions and swept away, and then spun again as new variants emerged, clearly led to a drop in confidence in the travelling public. The threat of expensive hotel quarantines following a rapid rule change and the risk of being left stranded overseas if testing positive were hardly a relaxing prospect for holidaymakers wanting to get away from it all.
It’s “little surprise” Heathrow Airport wants all tests for fully vaccinated passengers to be scrapped, in favour of a predictable playbook to go by, in the event of fresh variants of concern, Streeter adds.
Despite hopes for pent up demand to translate into a bounce back in bookings this year, the industry looks set to face a long haul recovery ahead. Many consumers are faced with an income squeeze which is likely put to expensive holidays out of reach. Others might have splashed their piles of savings on other luxury treats instead.
Among some older travellers who may still have the cash to spare, there is still a lingering fear of the new variants and they are likely to keep putting off booking that once coveted overseas trip.
So summer 2022 may not be as strong as the travel sector hopes….
The spring summer season is set to get warmer for Heathrow in terms of business, but it’s unlikely to be the scorcher the travel industry, and the retail and hospitality businesses which rely on transport hubs, sorely need.’’
Introduction: 600,000 Heathrow passengers cancel December travel plans over Omicron
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Heathrow Airport has warned that the aviation sector faces a “long-haul recovery”, after the omicron variant sparked a rush of cancelled flights last month.
The UK’s largest airport has revealed that at least 600,000 Heathrow passengers cancelled travel plans in December, after the discovery of the Omicron variant led to travel restrictions to be imposed.
For 2021 as a whole, Heathrow says it only saw 19.4 million passengers – less than one quarter of 2019, before the pandemic, when it handled 80.9m. That’s also around 12% less than in 2020 (when it handled 22.1m passengers).
And the outlook looks uncertain, Heathrow warns, as it urges ministers to drop Covid-19 testing for fully vaccinated passengers to encourage travel.
- There is significant doubt over the speed at which demand will recover. IATA forecasts suggest passenger numbers will not reach pre-pandemic levels until 2025, provided travel restrictions are removed at both ends of a route and passengers have confidence they will not return rapidly
- We are urging the UK government to remove all testing now for fully vaccinated passengers and to adopt a playbook for any future Variants of Concern that is more predictable, limits additional measures only to passengers from high-risk destinations and allows quarantine at home instead of in a hotel
Also coming up today
European markets are set to open higher, after worries about possible US interest rate rises hit stocks on Monday.
Wall Street managed a late recovery last night, after the Nasdaq Composite index dipped into correction territory (10% off its record high), ahead of Wednesday’s US inflation report.
Asia-Pacific stocks have dropped today though, with Australia’s S&P/ASX down 0.8%.
Kyle Rodda of IG explains:
Stocks have remained on the backfoot today, with sentiment across the ASX200 particularly weak.
Global pressures stemming from heightened volatility on Wall Street and fears about tighter global monetary policy are probably behind some of that, as is a market discounting marginally weaker profits from what’s shaping as a fairly material hit to the Australian economy from the current COVID-19 outbreak.
Investors will be keen to hear from Federal Reserve chair Jerome Powell today, when he appears before the Senate banking committee for a confirmation hearing.
Powell, who has been nominated for a second term, will be questioned about the Fed’s plan to control rising prices, and its recent hawkish twist.
In testimony released overnight, Powell says the central bank is prepared to take action to ensure elevated inflation does not become entrenched, while also pointing out that the post-pandemic economy may look different than before.
- 9.30am GMT: World Economic Forum publishes Global Risks Report 2022.
- 9.30am GMT: UK labour productivity statistics for Q3 2021
- 11am GMT: NFIB index of US business optimism
- 3pm GMT: US Federal Reserve chair Jerome Powell’s confirmation hearing at the Senate banking committee
UK retailers warn sales at risk from soaring cost of living in 2022
Britain’s retailers have said the soaring cost of living risks dragging down high street sales in 2022 after a bumper Christmas trading period and year of recovery in consumer spending.
Sounding the alarm over the risks for the UK economy as whole, the British Retail Consortium said there were significant headwinds for the industry in 2022 from high inflation, rising energy bills and planned tax increases.
In a joint report with the accountancy firm KPMG, the BRS said soaring living costs would erode households’ spending power and had the potential to weigh on retail sales after a strong festive season and a year of recovering ground that was lost during the first stage of the Covid-19 pandemic.
According to the latest snapshot, total retail sales rose by 2.1% during the key month of December, compared with a year earlier, and were up by 4.6% compared with 2019, before the pandemic struck.
Reflecting a stronger performance for the full year, as Britain’s economy recovered from repeated lockdowns, total sales grew by 9.9% compared with 2020, and by 6.6% compared with 2019.
However, retail bosses said the emergence of Omicron and increasing pressure on household budgets could hit sales at the start of 2022.
Helen Dickinson, chief executive of the BRC, said:
“Retail faces significant headwinds in 2022, as consumer spending is held back by rising inflation, increasing energy bills, and April’s national insurance hike.
“It will take continued agility and resilience if they are to battle the storm ahead, while also tackling issues from labour shortages to rising transport and logistics costs.”
Omicron hit Heathrow just a few weeks after the US lifted its travel ban, which was marked by a simultaneous double take-off by British Airways and Virgin Atlantic.
Despite the latest variant, Heathrow saw nearly 800,000 North America passengers in December – a 540% increase from 2020.
But that’s barely half as many as in December 2019, when Heathrow handled over 1.5m North America passengers, just before Covid-19.
David Edwards of Scattered Clouds, a tourism market intelligence service, tweets:
Heathrow CEO: aviation industry will only fully recover once restrictions lift
Heathrow CEO John Holland-Kaye argues that the sector will only “fully recover” once the risk of Covid-19 restrictions has lifted for good.
“There are currently travel restrictions, such as testing, on all Heathrow routes – the aviation industry will only fully recover when these are all lifted and there is no risk that they will be reimposed at short notice, a situation which is likely to be years away.
While this creates enormous uncertainty for the CAA in setting a new 5-year regulatory settlement, it means the regulator must focus on an outcome that improves service, incentivises growth and maintains affordable private financing.”
The Civil Aviation Authority proposed last October that Heathrow could increase charges by up to 56% by 2023 as it seeks to recoup losses from the pandemic. That’s less than Heathrow hoped, but much more than airlines argue is fair as they try to recover from Covid-19.
Source: Thanks msn.com