Our main story today: UK inflation has risen to a near-30-year high of 5.4%, driven higher by rising prices for food, furniture, clothes and housing costs. This deepens the country’s cost of living crisis, and heaps pressure on the Bank of England to raise interest rates at its next meeting in February, following December’s surprise hike.
Sterling rose 0.8% against the dollar to $1.3837 after the data, and was also supported by the surge in UK bond yields. The two-year gilt yield rose to its highest level since March 2018.
Crude oil prices are up for a fourth day and hit seven-year highs, after a fire on a pipeline from Iraq to Turkey briefly halted oil flows, raising fears about supply. Brent crude touched $89.05 a barrel, its highest level since October 2014 while US light crude climbed as high as $87.08, also the highest since then.
The explosion that set off the fire on the pipeline in the southeastern Turkish province of Kahramanmaras was caused by a falling power pylon, not an attack, a senior security source told Reuters.
European stock markets are trading between 0.2% (Italy) and 1% (France) higher. On Wall Street, US stock indices were boosted by upbeat results from a spate of companies such the consumer giant Procter & Gamble and the banks Bank of America and Morgan Stanley, which wrapped up the bank earnings season.
BOE's Bailey: Rising inflation could hit demand and push up unemployment
The Bank of England governor also said that rising inflation could hit demand and push up unemployment, ultimately bringing down price growth.
This is a hard thing to say... but if you get pressure on cost of living, pressure on real earnings, that will tend to restrain demand in the economy... and that could lead to an output gap opening up, and it could eventually of course lead to higher unemployment and that would bring inflation down.
I don’t want to suggest that... were we to consider it necessary, we don’t have to take any action in terms of the Bank of England’s action on interest rates. We would obviously judge that ourselves. But there is another channel there which would weaken demand in the economy.
Governor of the Bank of England Andrew Bailey in November 2021. Photograph: Reuters
Bank of England governor Andrew Bailey has told MPs on the parliamentary Treasury committee that the central bank’s regional agents are picking up some signs of pay rises picking up because of rising inflation.
They tell me, at the moment, they are beginning to see some evidence of this.
However, official data for November showed that pay increases were not keeping up with inflation at that time, as we reported yesterday.
Bailey also said that the Bank’s policymakers can and will do everything they can to control inflation.
Inflation in Canada has also picked up, rising to 4.8% in December from 4.7% in November.
Over here, Clea Skopeliti, a freelance reporter, has spoken to people about how they are coping with rocketing food prices and energy bills.
There are some heart-breaking accounts. Primary school teacher Kate Locke from Reading, a single parent with a teenage son, is really struggling and says she is “not getting through the month”. They use hot-water bottles in the evening to avoid putting on the heating (despite freezing temperatures).
The main stock markets in Europe are all pushing higher and crude oil prices are 0.6% (Brent crude) to 0.7% (US light crude) ahead.
UK’s FTSE 100 index up 38 points, or 0.5%, at 7,601
Germany’s Dax up 0.6% at 15,869
France’s CAC up 0.8% at 7,192
Italy’s FTSE MiB up 0.1% at 27,521
Prime minister Boris Johnson plans to fight on, according to his press secretary. Asked if Johnson would fight any no-confidence motion brought against him by his Conservative lawmakers, the press secretary told reporters:
Yes... Our focus is very clear in terms of delivering the ambitious agenda that we have set out and [were] elect on on in 2019 and we want to continue to work together as Conservatives to deliver this.
The press secretary said Johnson wants to fight the next general election.
One of his Tory MPs, Christian Wakeford, has defected to Labour. The Tory grandee David Davis told Johnson: “In the name of God, go,” during an often chaotic prime minister’s questions overshadowed by intense doubt about Johnson’s future.
After a fierce set of exchanges between Johnson and Labour leader Keir Starmer, Davis rose to tell Johnson that he had spent weeks defending him from “angry constituents”, but that repeated reports about lockdown-breaching parties were too much. You can read more on our politics live blog.
KPMG has been fined £3m for failures during its audit of the Bargain Booze owner Conviviality and severely reprimanded in the latest blow to its reputation, reports Jasper Jolly.
The accounting regulator, the Financial Reporting Council (FRC), found “a serious lack of competence” in KPMG’s 2017 audit of the company, which collapsed within nine months of the accounts being signed off. The initial fine was £4.3m, but this was reduced because the firm admitted the failings.
The KPMG partner in charge of the audit, Nicola Quayle, was also fined £110,000 and given a severe reprimand. Quayle, who previously led KPMG’s Manchester office and sat on its UK board, will pay £80,850, after receiving a discount for admitting the failures.
UK watchdog to curb marketing of crypto investments
Britain’s financial watchdog plans to clamp down on the marketing of crypto assets (such as Bitcoin) and other high-risk investments, amid a boom in crypto ads and endorsement from celebrities.
The changes would strengthen risk warnings on ads and ban incentives to invest, such as new joiner or refer-a-friend bonuses, the Financial Conduct Authority said.
We are concerned that too many consumers are just ‘clicking through’ and accessing high-risk investments without understanding the risks involved.
My colleague Rob Davies reported last week that 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.
Sony’s market value plunged by $20bn in its biggest share price slump since the global financial crisis of 2008, after rival Microsoft announced a record-breaking deal to buy Call of Duty publisher Activision Blizzard and take the console wars into the metaverse, writes our media business correspondent Mark Sweney.
The news of the blockbuster deal sparked a wave of investor interest in further consolidation with shares in FIFA football franchise publisher Electronic Arts and Take-Two Interactive, maker of games including Grand Theft Auto, rising. French publisher Ubisoft, which makes Assassins Creed, rose almost 12% while in Japan Capcom and Square Enix rose by 3.5%.
“Sony’s response will be one to watch, of course,” said Clay Griffin, analyst at MoffettNathanson. “But we question its ability to go toe-to-toe with Microsoft financially. We doubt Sony could digest something of the scale of Electronic Arts or Take Two.”
Microsoft deal wipes $20bn off Sony's market value
Microsoft’s $69bn deal to buy the games publisher Activision Blizzard, which makes mega franchises Call of Duty, World of Warcraft and Candy Crush, has wiped $20bn off rival Sony’s market value. Bloomberg News writes:
The blockbuster acquisition escalates Microsoft’s spending spree to secure intellectual property assets for its Xbox Game Pass service, wiping $20 billion off Sony’s valuation in a day. The push to attract paying subscribers with an overwhelming portfolio of games challenges Sony’s traditional console business model that relies on high-profile exclusive titles and hardware sales. Games and network services account for about 30% of Sony revenue.
Lidl’s 900th store in Britain will open its doors for the first time tomorrow.
Located near Liverpool city centre, it is one of six stores opening in January, which will together create almost 250 new jobs. The German discount chain is also opening two shops in London as well as outlets in Shipley, Merry Hill and Newcastle.
Lidl has opened 50 new stores in the last 12 months and its targeting 1,100 in the UK by the end of 2025. It is investing £1.3bn in its store expansion in 2021 and 2022.
The logo of retailer Lidl. Photograph: Régis Duvignau/Reuters
Back to the main news of the day, the jump in UK inflation to a near-30-year high of 5.4%. Here is some analysis from our economics editor Larry Elliott:
Inflation was supposed to be yesterday’s problem. This time last year, the government’s preferred measure of the annual increase in the cost of living was running at less than 1%. Now it stands at 5.4% – the highest in almost 30 years – and it has not peaked yet.
With the lagged impact of the supply-chain bottlenecks of last autumn feeding through into prices in the shops and a likely 50% jump in domestic energy bills to come, inflation will certainly exceed 6% in April and may be closer to 7%.
Clearly, the data released by the Office for National Statistics will concern the Bank of England, which is mandated to hit the government’s 2% inflation target and has continually underestimated price pressure over the past year.
The Bank’s monetary policy committee will next meet in early February – and with the cost of food, household goods, eating out, staying in hotels and clothing and footwear all pushing inflation higher last month – the chances of an increase in borrowing costs from 0.25% to 0.5% have increased.
In a big blow to Britain’s second-biggest drugmaker GSK, its highly regarded chief scientific officer Hal Barron is jumping ship, to lead an anti-ageing Silicon Valley start-up in August.
Barron, who was one of GSK chief executive Emma Walmsley’s key hires in late 2017, will be replaced by Tony Wood as GSK’s CSO on 1 August. Barron will join the biotech Altos Labs, based in the San Francisco bay area, which is reportedly backed by billionaires including Amazon founder Jeff Bezos. The 60-year-old veteran of Genentech and Roche will stay on GSK’s board, however.
Walmsley said:
We are delighted to appoint Tony as our next CSO. He is an outstanding scientist who is highly respected inside and outside GSK. Tony has been a key partner to Hal in delivering our R&D approach, and with his experience and expertise across science, data and new technologies, he is perfectly placed to build on Hal’s outstanding progress and to deliver value from our pipeline. Hal’s appointment to Altos Labs is a unique opportunity for him and we are pleased that GSK will continue to benefit from his expertise at the Board and in support of R&D.
Barron said:
Tony will be an outstanding Chief Scientific Officer for GSK. I have worked closely with him for several years. I know him as a person and scientist of the highest quality. In the last four years we have significantly improved the quality and strength of the pipeline and our overall R&D productivity, delivering 13 major product approvals and more than doubling the number of assets in Phase III/registration to 23. GSK now has a pipeline of 21 vaccines and 42 medicines.
Huge blow for GSK as its highly respected R&D chief leaves to run an anti-aging biotech backed by Jeff Bezos. GSK is spinning off consumer healthcare in oder to raise more money to invest in its drug pipeline, which has underperformed in recent years. Bad timing.
GSK is in the middle of splitting itself apart, with a London stock market flotation for its consumer health venture planned for the summer. At the weekend, it said it had rejected three takeover bids from the consumer giant Unilever for the business, the latest worth £50bn. The drugmaker has been under pressure from the activist investor Elliott Management to explore a sale of consumer health. Here is our latest story on the saga.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said:
There is further speculation that the Bank of England will raise interest rates by 0.5% at its February meeting in order to counter rising inflation, and it remains to be seen what impact this will have on buyer confidence.
Despite the global pandemic, the housing market was able to thrive last year and there are still those who have not yet made their purchase. Squeezed affordability would be an issue, preventing first-time buyers in particular from getting on the ladder, but the Bank will be mindful that as we come out of a pandemic, a succession of significant rate increases could be extremely damaging to the wider economy.
Low mortgage rates have been one of the contributing factors to the housing boom and although some lenders are tweaking mortgage rates upwards on the back of higher money market rates, pricing remains competitive.
Terrace Housing, Liverpool. Photograph: Paul White - North West England/Alamy
Phillip Stevens, director of the Richmond estate agency Antony Roberts, thinks that the December rate hike from the Bank of England has not dented buyers’ confidence so far:
It was business as usual in November as prices rose again following October’s dip which came about following the end of the stamp duty holiday. There is plenty of evidence that buyer demand remains strong, especially for houses, and with relatively little stock available it is a house seller’s market.
The interest rate rise does not appear to have dented buyers’ confidence thus far, nor their ability to purchase property, but with inflation at a 30-year high that could change as it may well be the first hike of many. Those wanting to make their move will be keen to do so sooner rather than later but whether they can will depend on what stock launches onto the market this spring.
In other inflation news, UK house prices rose 10% in November from a year earlier, according to the Office for National Statistics. This compares with an annual rate of 9.8% in October.
House price inflation peaked at 13.5% in June, the highest in more than 15 ears, shortly before the government began to phase out a tax break on purchases.
UK average house prices increased by 10% in the year to November 2021.
Wetherspoon boss attacks No 10 ‘hypocrisy’ as sales crash
The pub chain JD Wetherspoon has criticised the government’s “hypocrisy” for holding parties at 10 Downing Street while restrictions forced pub sales to crash, reports my colleague Jasper Jolly.
Wetherspoon also said the latest plan B restrictions brought in at the start of the Omicron wave of infections in December had depressed sales over the crucial festive period in the hospitality sector for a second year running.
The pub chain, run by chairman and founder Tim Martin, directed its ire at the government over “partygate”.
Wetherspoon said “there would have been a number of advantages for the nation” if pubs had been open on 20 May 2020, the date on which the embattled prime minister attended a “bring your own booze” party in the garden of No 10.
Boris Johnson during a visit to Wetherspoons Metropolitan Bar in London with Tim Martin, chairman of JD Wetherspoon, in July 2019. Photograph: Henry Nicholls/PA
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