UK economy recovers to pandemic levels; pound highest since 2016; US retail sales slide – business live

Back in the UK, the NIESR thinktank has lifted its forecast for growth at the end of last year, thanks to the stronger-than-expected expansion in November.

NIESR now expects GDP to rise by 1.2% in the October-December quarter, due to the “rapid and broad-based growth in November”.

However, only expect growth of 0.6% in the first quarter of 2022.

Rory Macqueen, principal economist at NIESR, says:

“November 2021’s growth in GDP was broad-based, with output increasing almost across the board and transport and education among those returning to their pre-Covid output levels.

Omicron is likely to have caused a significant slowing in growth in December, but the November data show little sign of headwinds from supply shortages: manufacturing and construction both enjoyed their strongest month-on-month growth since March 2021.”

Another gloomy sign from the US economy – consumer confidence has weakened this month:

In New York, the Dow Jones Industrial Average has opened lower as the slump in US retail sales in December worries investors.

The Dow has dropped by 211 points to 35,902, down 0.6%.

JP Morgan is the top faller, down 5% after beating profit expectations today (see earlier post), followed by American Express (-3.5%), Walt Disney (-2.7%) and Goldman Sachs (-2.5%).

Tech stocks are holding up better, though, with the Nasdaq Composite up 0.3% in early trading, as a weaker economy may mean US interest rates don’t rise as fast.

Britain’s cost of living crisis is no laughing matter, something the energy suppliers are struggling to grasp.

E.ON Next has apologised to thousands of British households after sending them a pair of socks alongside unwelcome advice on how to keep warm during the national energy crisis.

My colleague Jillian Ambrose explains:

E.ON Next said it was “incredibly sorry” after sending pairs of polyester socks branded with advice to turn heating down to help reduce carbon emissions to about 30,000 households which had taken part in an energy saving campaign last year.

Many of the new E.ON Next sock-owners took to social media to criticise the “pitiful package” which was delivered to homes in the same week that Ovo Energy was forced to apologise for a customer letter urging households to cuddle a pet or perform star jumps to keep warm.

British households face some of the highest energy bills on record this winter, due to record high market prices which could drive fuel poverty levels to the highest since records began.

Related: E.ON says sorry for sending socks to customers with advice to keep warm

Age UK warned this week that millions of older people in the UK face an energy emergency, with some forced to switch off their heating, limit hot showers and live off soup and sandwiches to pay their increased energy bills.

Related: Age UK calls for help for millions of older people struggling to afford heating

Back on Monday, energy supplier Ovo apologised and said it was “embarrassed” after it advised customers to keep their heatings bills low by “having a cuddle with your pets”, eating “hearty bowls of porridge” and “doing a few star jumps”.

Related: ‘Do star jumps’: energy supplier criticised over advice on keeping warm

The slide in December US retail spending could discourage the US Federal Reserve from tightening policy quickly, suggests Craig Erlam, senior market analyst at OANDA:

The US retail sales report was rather disappointing in December, perhaps a sign of consumers being more restrained as a result of omicron, not to mention early Christmas prep in anticipation of supply issues.

Markets seem a little directionless after the release, which could be a sign that investors don’t know how to take the data. A strong report would have been positive for the economy but also feed into the argument for faster tightening, which is not being particularly well received at the moment. A few weak reports may, on the other hand, encourage caution from policymakers.

Cryptocurrency firms bombarded Londoners with a record number of adverts on public transport during 2021, fuelling calls for a ban to prevent people being lured into risky investments.

The surge in adverts for crypto assets, which are unregulated in the UK, has prompted concerns about the risk of addiction and financial harm, particularly given the wild volatility in the price of digital currencies such as bitcoin, which reached record highs last year before crashing again.

It also emerged that Transport for London (TfL) has not implemented a ban on gambling adverts promised by the mayor, Sadiq Khan, allowing the industry to step up its marketing activity in the meantime.

Records obtained by the Guardian under the Freedom of Information Act show that TfL services displayed 39,560 crypto adverts from 13 firms in the six months between April and September 2021.

Major advertisers include the trading platform eToro, floki – “a “meme coin” named after Elon Musk’s dog – Crypto.com and Luno Money, whose campaign telling people it was “time to buy” bitcoin was banned by the advertising regulator for being “irresponsible”. More here.

Related: Cryptocurrency ads reach record levels on London transport

Meanwhile, Dogecoin, the cryptocurrency with a shiba inu dog meme, soared in value by 15% on Friday after the billionaire Elon Musk said it could be used to buy Tesla merchandise.

Related: Dogecoin value soars after Elon Musk says it will be accepted for Tesla goods

The French government will force EDF, the state energy giant, to take an €8.4bn (£7bn) financial hit to protect households from rocketing energy costs by limiting bill hikes to 4% this year.

The company lost a fifth of its market value on Friday after the French government set out plans to cap rising energy bills which include forcing EDF to sell electricity generated by its fleet of nuclear reactors to rival home suppliers at well below the current record high market prices.

The move underlines pressure on governments across Europe to help households squeezed by the cost-of-living crisis. The UK chancellor, Rishi Sunak, has been accused of being “missing in action” over soaring energy bills. He has been in talks with MPs and companies to agree a package of measures to soften the blow of the national energy crisis, but no decisions have been made.

Here’s the full story:

Related: France to force EDF to take €8.4bn hit with energy bill cap

Ouch! US retail sales fell by 1.9% in December, as worries over the Omicron variant, product shortages and rising inflation hit spending.

That’s much weaker than expected and shows America’s consumers are under growing pressure.

Inflation hit its highest level since 1982 in December, the pandemic escalated, and supply problems created shortages.

Stripping out cars and gasoline, retail sales were down 2.5% in December – showing little festive cheer for retailers.

Back in the UK, wage growth is lagging behind inflation despite the pick-up in growth.

Data from jobs site Indeed shows a rise in advertised pay, but a slow start to new vacancies in the new year:

BlackRock has become the first public asset manager to hit $10 trillion in assets, propelled by a surge in fourth-quarter flows into its exchange-traded funds.

New York-based BlackRock has reported that assets grew by 15% during 2021 to reach over $10.01trn.

BlackRock saw $540bn of total net inflows during the year, including $104bn into ETFs in the last three months of 2021, it says, a record for the world’s largest money manager.

It benefitted from the boom in trading, and rising asset prices, last year, as people invested in actively managed funds and also passive vehicles that track the markets.

Larry Fink, chair and chief executive, says:

“BlackRock delivered the strongest organic growth in our history, even as our assets under management reached new highs. We generated $540 billion of net inflows in 2021, including an industry leading $267 billion of active net inflows.

Fink adds that the firm is more diversified than ever before:

Active strategies, including alternatives, contributed over 60% of 2021 organic base fee growth. Our industry-leading iShares ETF platform remained a significant growth driver with record flows of $306bn.

Higher pay also ate into JP Morgan’s profits.

“Noninterest expense” rose 11% to $17.9bn, largely due to higher compensation.

The UK’s trade gap with the rest of the world widened in the three months to November, by £2.8bn to £9.3bn.

The UK continued to import more from non-European countries than from the EU.

In November alone, total imports of goods, excluding precious metals, increased by £2.0bn, due to an £800m increase in EU imports and a £1.1 billion rise in imports from non-EU countries.

Exports lagged, falling by £300m due to drop in sales to non-EU countries.

Thomas Sampson, associate professor at the LSE, says the Brexit free trade deal (the EU–UK Trade and Cooperation Agreement) has hit imports from the EU:

The pound has hit its highest level against a basket of currencies since the EU referendum in 2016.

The British pound’s trade-weighted index has risen to its highest level since June 24 2016, the day after the Brexit referendum vote.

Reuters has the details:

The Bank of England’s sterling exchange rate index measures the overall change in the trade-weighted exchange value of sterling, calculated by weighting together exchange rates adjusted for their trade relationships and is closely tracked by market participants.

It rose to 83.288 on Thursday, jumping nearly 4% in over a month to vault over the highs seen last October. The BoE releases the data with a day’s lag.

© Provided by The Guardian
The pound against a basket of currencies over the last decade Photograph: Refinitiv

Sterling has been lifted by optimism over the economic recovery, as worries over Omicron’s long-term impact ease, and by expectations that UK interest rates will rise in 2022 to combat rising inflation.

Dean Turner, economist at UBS Global Wealth Management, explains:

Sterling has been the best performer amongst the G10 countries thus far in 2022, largely due to expectations of further interest rate hikes. With the other central banks, most notably the Fed, becoming more hawkish the pound may struggle to make further progress against the US dollar.

Sterling strength is likely to be confined to currencies where central banks are more cautious, including the euro and the Swiss franc.”

It has taken a year and a half but the UK economy has now regained the ground lost during the early stages of the Covid-19 pandemic.

But as our economics editor Larry Elliott writes, Omicron has muddied the waters:

A better than anticipated performance last November means national output is now 0.7% higher than it was in February 2020.

Other countries reached this milestone sooner, with the US for example already operating well above its previous peak. Even so, Britain has experienced what economists call a V-shaped recession, with a precipitous drop in activity in March and April 2020 followed by a brisk – if occasionally interrupted – recovery.

That pattern is explained by the nature of the Covid shock. Governments imposed lockdowns in an attempt to prevent the virus spreading, and once the restrictions were eased businesses that had been closed reopened and economies bounced back. The UK economy contracted by less during the financial crisis of 2008-09 than it did in 2020 but took much longer to regain the lost ground…

Larry’s full analysis is here:

Related: Omicron likely to slow UK bounceback from economic Covid shock

Germany’s economy has yet to recover from the pandemic, new data shows.

The Federal Statistical Office has reported that Germany’s economy grew by 2.7% last year, with growth hit by Covid-19 infections and restrictions imposed to fight the pandemic.

That leaves Germany’s GDP still 2.0% lower in 2021 than in 2019, the year before the Covid-19 crisis began, after the economy plunged 4.6% in 2020.

© Provided by The Guardian
Germany’s GDP Photograph: Destatis

Dr. Georg Thiel, president of the Federal Statistical Office, says:

“Despite the continuing pandemic situation, more delivery bottlenecks and material shortages, the German economy managed to recover from the sharp fall last year although the economic performance has not yet reached its pre-crisis level again.”

Germany’s factory sector has been hit by supply chain issues, with semiconductor shortages hurting the car industry. Manufacturing, for instance, was 6.0% below the level of 2019 in 2021.

Currys has trimmed its annual profit forecast after a shortage of goods ranging from PlayStation 5 consoles and Apple products to hairdryers resulted in a 5% fall in sales over the peak Christmas period.

The UK’s biggest electrical retailer said that sales were hit by problems including the global chip shortage, which is affecting the supply of goods from TVs to appliances, the shipping of products and a drop in demand as households budgets become increasingly squeezed.

“The technology market was challenging this Christmas, with uneven customer demand and supply disruption,” said Alex Baldock, the chief executive of Currys, which formerly traded as PC World, Carphone Warehouse and Dixons.

“We have certainly had our hands full this Christmas with supply, not just of products but also of people, containers, chip sets, the full range.”

Related: Currys sales slide amid shortages of key tech goods

Baldock has also warned that price rises are coming, telling reporters:

“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,”.

The UK economy surpassed its pre-pandemic level for the first time in November after growing by 0.9% over the month, partly driven by an unexpected surge in early Christmas shopping.

The Office for National Statistics (ONS) said a jump in restaurant bookings and a rapid turnaround in construction output were also behind the growth that took the size of the economy 0.7% above its level before March 2020.

City economists had expected an expansion of only 0.4% and warned that November was likely to prove a high point in 2021, with the figures collected by the ONS coming shortly before the Omicron variant took hold, exacerbating worker shortages as thousands were off sick, and forcing the government to introduce plan B restrictions. It followed growth of 0.2% in October.

The continuing increase in health services as a proportion of economic activity was another factor supporting the rise in GDP, the ONS said.

Against a backdrop of rising inflation and the threat of further interest rates by the Bank of England, business groups warned the economy remained weak.

Suren Thiru, the head of economics at the British Chambers of Commerce, said:

“Stronger growth in November is likely to be followed by a modest fall in output in December and January, as consumer caution to socialise and spend, and mounting staff absences sparked by Omicron and plan B limit activity.

“While the UK economy should rebound once plan B measures are lifted, surging inflation and persistent supply chain disruption may mean that the UK’s economic growth prospects remain under pressure for much of 2022.”

Related: UK economy back to pre-pandemic levels in November

UK construction sector output was the highest since September 2019 in November.

The 3.5% jump in output was the best since March, with easing supply chain bottlenecks and mild and dry weather helping builders to press on with new work.

© Provided by The Guardian
Uk construction output Photograph: ONS

The global surge in demand for energy could spark another three years of market volatility and record power plant pollution unless countries make major changes to how they generate electricity, the world’s energy watchdog has warned.

The International Energy Agency recorded the steepest ever increase in electricity demand last year, which triggered blackouts in major economies and led to historic energy price highs and record emissions.

The IEA’s annual electricity report said this could continue for another three years, with serious consequences for consumers and economies unless there is a faster structural change to the way electricity is produced.

The IEA’s executive director, Fatih Birol, said:

“Sharp spikes in electricity prices in recent times have been causing hardship for many households and businesses around the world and risk becoming a driver of social and political tensions,”

Related: Global surge in electricity use could bring three more years of price rises

The UK’s manufacturing sector had a decent November too.

Manufacturing was the largest contributor to production growth, increasing by 1.1%, with positive growth in 9 out of the 13 manufacturing sub-sectors.

Production of cars jumped by 7.8%, which suggests some of the supply chain problems hitting auto factories eased.

But the mining sector shrank, due to a 2.3% fall in extraction of crude petroleum and natural gas — which won’t have helped ease the energy crunch.

© Provided by The Guardian
UK production sector performance in November

This chart handily breaks down the growth in the UK’s service sector:

© Provided by The Guardian
UK GDP report, November 2021 Photograph: ONS

The 2.5% jump in professional, scientific, and technical activities was driven by architectural and engineering work, with some companies saying they brought work forward.

Postal and couriers were busy in November, helping the transport and storage sector to grow, due to early Christmas shopping and Black Friday demand.

There was also growth of 14.6% in air transport, the sixth consecutive month of positive growth – but leaving the sector over 23% smaller than before Covid.

It’s encouraging that all major sectors of the UK economy grew in November, as Thomas Pugh, UK Economist at RSM explains:

The services sector grew by 0.7% m/m, boosted by stronger retail sales as consumers brought forward some Christmas shopping. But output in consumer-facing services are still 5.0% below their pre-coronavirus levels.

The 1.1% jump in manufacturing output suggests that the easing of supply shortages, especially in the automotive manufacturing sector, which has been evident in some of the survey data recently is filtering through into higher output.

Finally, construction output soared, growing by 3.5% m/m as an unusually dry November and easier access to materials allowed firms to ramp up production.

The hit from Omicron may mean the UK economy temporarily falls back below its pre-pandemic levels in January.

Paul Dales, chief UK economist at Capital Economics, says November’s 0.9% growth was impressive, as the economy gained momentum…. but has taken a knock since.

The increase was mostly due to a 1.1% m/m rise in manufacturing output, a 3.5% m/m leap in construction output and a 2.5% m/m gain in professional/scientific activities.

It seems that an easing in shortages contributed to the first two, with car output rising by 7.8% m/m and construction materials reportedly easier to source (although the unusually dry weather probably helped too). And the rise in the third was apparently due to architectural/engineering activities being brought forward from December.

Accommodation (+0.5% m/m), arts/entertainment (+1.2% m/m) and education (+1.4% m/m) all performed well too. But output in those three areas 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.

Dales has pencilled in a 0.5% m/m decline in GDP for both December and January.

The squeeze on household budgets from rising inflation will weigh on the economy this year, agrees James Smith, research director at the Resolution Foundation:

“Today’s GDP data show an economy growing robustly on the eve of omicron, with a welcome return to pre-pandemic levels of monthly output as sectors such as retail grew rapidly.

“But more timely data show that consumer-facing services like hospitality hit a brick wall in December and January, as families become more cautious in the face of rising cases.

This, combined with rising inflation and soaring energy bills, means we may need to work back towards this November peak of output in early 2022.”

Growth is likely to slow this year, predicts Yael Selfin, chief economist at KPMG UK, after the UK hit a ‘milestone’ in November.

Rising taxes and borrowing costs, as well as elevated inflation, will squeeze households’ purchasing power, while the lingering effects of supply chain bottlenecks together with a persistent shortage of labour could constrain production this year.

“Despite the growing threat of Covid, the UK economy was back on track in November led by professional scientific and technical activities as well as transport and storage services. GDP grew by 0.9% to reach a level last seen before the pandemic.

“Strong retail sales show the growing importance of November pre-Christmas sales to the holiday season, especially as December was marred by rising infections due to the Omicron variant. Elsewhere, manufacturing activity showed signs of easing supply tensions, while services built on October’s strong momentum.”

Overall, GDP grew by 1.1% in the three months to November 2021, reflecting the strong performance of the services sector, the ONS says:

Administrative and support service activities, human health and social work activities and transport and storage were the three largest contributors to the services sector growth.

© Provided by The Guardian
UK GDP to November 2021

© Provided by The Guardian
UK GDP to November 2021 Photograph: ONS

The UK’s surge in growth in November has unfortunately been overtaken by the Omicron variant, cautions Alpesh Paleja, CBI lead economist.

Supply chain problems, and the cost of living crisis, are also weighing on growth, Paleja explains:

“While it’s good that economic growth picked up in November, the data has been overtaken by events. Activity is very likely to have taken a hit in December, as the spread of the Omicron variant and subsequent restrictions disrupted operations in certain sectors.

“As we kick off the new year, the near-term outlook is also clouded by additional challenges: shortages of labour – exacerbated by sickness absence, supply chain disruption and a cost of living crunch for households.

“Implementing Plan B in December was the right thing to do, but with Covid clearly here to stay, the Government must now act to prevent the need for further restrictions on activity. This includes providing clearer forward guidance to support business adaptation, prioritising mass-testing over mass self-isolation, and ensuring that travel controls are proportionate so that the UK remains open to the rest of the world.”

Chancellor of the Exchequer, Rishi Sunak, has welcomed the news that Britain’s economy is larger than before the pandemic:

“It’s amazing to see the size of the economy back to pre-pandemic levels in November – a testament to the grit and determination of the British people.

“The government is continuing to support the economy, including through grants, loans and tax reliefs for businesses, and our Plan for Jobs is ensuring people up and down the country have fantastic opportunities.

“We all have a vital part to play to protect lives and jobs, and I urge everyone to do theirs by getting boosted as soon as you can.”

Good morning.

The UK economy has recovered to its pre-pandemic level, after a surge of growth in November.

UK GDP grew by 0.9% in November, data from the Office for National Statistics shows, as the economy picked up after slowing to just 0.2% in October.

It means UK GDP is 0.7% above its level in February 2020, just before the first wave of Covid-19 pandemic hit – a milestone in the recovery from the pandemic.

© Provided by The Guardian
UK GDP Photograph: ONS

However, this recovery came just before the Omicron variant hit the UK, causing disruption in December.

The ONS reports that the services, production, and building sectors all expanded in November, while the retail sector saw strong growth.

• Services (0.7%), production (1.0%) and construction (3.5%) output all increased between October and November 2021; this means that services and construction output are both 1.3% above their pre-coronavirus levels while production remains 2.6% below.
• In the latest month, output in consumer-facing services grew by 0.8%, mainly because of a 1.4% increase in retail trade, while all other services rose by 0.6%; consumer-facing services are still 5.0% below their pre-coronavirus levels, while all other services are 2.9% above.

We’ll pull together more details and reaction now.

Also coming up today

China has posted a record trade surplus in December and in 2021, with exports growing 20.9% year-on-year last month and imports up 19.5%.

Trade data from the UK and the eurozone today will show how Covid, and Brexit, weighed on trading in November.

New US retail sales and consumer confidence data will highlight if Omicron has hurt the American economy.

European stock markets are set for a lower start, after another day of choppy trading on Wall Street. The tech-focused Nasdaq index tumbled 2.5%, to its lowest level since October.

On the corporate side, Blackrock, Citi, JP Morgan and Wells Fargo are releasing Q4 financial results.

The agenda

• 9am GMT: Germany’s full year GDP report
• 10am GMT: Eurozone trade balance for November
• 1.30pm GMT: US retail sales for December
• 2.15pm GMT: US industrial production for December
• 3pm GMT: Michigan survey of US consumer sentiment in January