UK households hit by rising cost of living; Omicron lifts US jobless claims to three-month high – as it happened

Time to wrap up... here’s today’s main stories:

US jobless claims has risen to a three-month high, after the Omicron variant hit the US economy.

A majority of UK firms have reported that turnover dropped in December as Plan B restrictions kept customers away...

...while households have reported that the cost of living has pushed up, led by pricier food, energy and fuel.

The government has been urged to provide “helicopter money” to support households hit by escalating energy bills, as inflation hits the economy.

Expectations of higher UK interest rates have pushed the pound to a 23-month high against the euro.

Companies, such as Citi, have started calling staff back to the office now that pandemic restrictions are being lifted, leading to busier public transport.

And there could be a rush of delayed Christmas parties in the next few months, after corporate clients rebook events cancelled in December.

European Commission president Ursula von der Leyen has warned the World Economic Forum that Russia will face massive economic and financial sanctions if it attacks Ukraine.

Grocery, retail and food ingredients business Associated British Foods said inflationary pressures are intensifying. The firm is facing higher raw material costs, supply chain challenges and steeper energy bills, which will be passed onto customers.

ABF is also cutting hundreds of jobs at Primark, where the Omicron variant disturbed its recovery.

Aldi is ditching grocery deliveries via Deliveroo to focus on its own home shopping service as consumers return to stores in greater numbers.... while Deliveroo reported sales growth again in the last quarter.

Almost £1.2bn worth of fruit, veg and bread is binned in the UK every year, with one in five consumers stating the reason they waste so much is they “don’t know what to cook”.

Unilever continued to face criticism over its £50bn attempt to buy GSK’s consumer healthcare arm, with a top shareholder calling it a “near-death experience”.

China cut mortgage rates in a new effort to prop up its economy, and bolster the property sector.....

... while a group of international bondholders in the embattled Chinese property developer Evergrande have hired an offshore law firm and warned of legal action if the company continues to refuse “substantive engagement” over its finances and restructuring plans.

Goodnight. GW

20 Jan 202212.09 EST

Rupert Neate

The billionaire entrepreneur Elon Musk’s brain chip startup is preparing to launch clinical trials in humans.

Musk, who co-founded Neuralink in 2016, has promised that the technology “will enable someone with paralysis to use a smartphone with their mind faster than someone using thumbs”.

The Silicon Valley company, which has already successfully implanted artificial intelligence microchips in the brains of a macaque monkey named Pager and a pig named Gertrude, is now recruiting for a “clinical trial director” to run tests of the technology in humans.

European stock markets have closed, with the UK lagging behind other major bourses today.

The FTSE 100 has closed 5 points lower at 7595.

Associated British Foods was the top faller, down 4%, after reporting that inflationary pressures were rising, and that omicron had disrupted the recovery at its Primark retail arm. Banks and oil companies also dipped.

GSK fell 1.8% after Unilever said it wouldn’t raise its £50bn offer for its consumer healthcare division, following criticism from some shareholders.

Michael Hewson of CMC Markets says:

We could be seeing an element of profit taking on the likes of Royal Dutch Shell and BP after a decent run of gains and a solid start to the year. Even with today’s declines BP is still up over 17% year to date, and Shell is up 12%. Lloyds and NatWest group are also softer as well.

Also weighing on the UK benchmark is GlaxoSmithKline after Unilever said it wouldn’t be raising its £50bn bid for the company’s consumer healthcare division.

Unilever shares initially bounced higher, after confirming that they wouldn’t be raising their offer for GlaxoSmithKline’s consumer business, drawing a sigh of relief from their shareholders over a concern that they might have been saddled with high levels of debt, or be diluted by a possible fundraising.

Even so this morning’s early gains were short-lived, with shareholders entitled to ask how an attempt to try and boost the profitability of a business that is struggling to boost its margins, has resulted in the shares falling to their worst weekly decline since July last year.

Across Europe, the Stoxx 600 index gained 0.5% today, with Germany’s DAX (+0.6) and France’s CAC (+0.3%) picking up.

Global trade policy makers should try to build a more resilient and sustainable trading system that supports higher living standards, rather than recreating the pre-pandemic set-up.

So argued U.S. Trade Representative Katherine Tai on a virtual panel held by the World Economic Forum today.

Tai cautioned against a backward-looking “return to normalcy” after two years of COVID-19-induced disruptions, saying:

“I think that it is time for us to acknowledge that our goal really shouldn’t be to try to go back to the way the world was, say in 2019, but to take lessons, very hard earned lessons, very painful lessons that we have experienced over the past two years and take this opportunity to build toward something that is different and better.

20 Jan 202211.34 EST

Phillip Inman

The government should adopt a programme of “helicopter money” to support households hit by escalating energy bills, according to a leading thinktank with Labour and Tory MPs on its advisory board.

The Social Market Foundation (SMF) said the chancellor, Rishi Sunak, should support millions of low- and middle-income households through the cost of living crisis with a simple programme of US-style one-off cash payments worth £8.5bn. The proposal comes two weeks before the energy regulator, Ofgem, announces a rise of as much as £500 on the annual price cap on energy bills from April.

In a blog written by the SMF chief economist, Dr Aveek Bhattacharya, the thinktank urged Sunak to reject the overcomplicated solutions being put forward by the energy industry that would encourage people to use more energy and prop up ailing suppliers.

Bhattacharya said a cheque for £300 should be sent to households that did not have a higher rate taxpayer, with an additional £200 for those on universal credit or legacy benefits, helping those who rely on the basic state pension or disability benefits.

He said:

“An emergency cash payment would also have the benefit of being a clear one-off intervention, whereas other proposals would risk committing the government to costly ongoing subsidies, that it would find politically difficult to end.”

It’s a timely intervention, with two-thirds of households reporting the cost of living squeeze tightened in the last month.

20 Jan 202211.24 EST

Mark Sweney

A leading Unilever shareholder has called the company’s failed £50bn offer for GSK’s consumer healthcare division a “near-death experience” and said management should focus on improving its core business – or step down.

Terry Smith, the founder of Fundsmith, lambasted Unilever in a “postmortem” letter to investors in his £29bn asset management business.

The letter comes a day after Unilever said it would not increase its bid for a fourth time, leaving GSK free to float its consumer arm as planned this summer.

The letter, which was co-written by Fundsmith’s head of research, Julian Robins, said:

“[This is] about a near death experience as it now appears that Unilever’s attempt to purchase the GSK consumer business is now thankfully dead rather than the value of our investment in Unilever.”

Existing homes sales in the US dropped in December for the first time in four months.

Sales of previously-owned homes fell by 4.6% last month, to an annualised rate of 6.18m units.

With inventories of unsold homes at record lows, shortages of property are keeping some buyers out of the market.

Sterling has hit its highest level against the euro in almost two years.

Expectations that the Bank of England will raise interest rates this year to combat inflation pushed the pound up to €1.2030 against the euro, the highest since February 2020.

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Matthew Ryan, CFA, senior market analyst at Ebury, says yesterday’s rise in UK inflation to 5.4% makes a February interest rate rise very likely.

“The reaction among currency traders has been to send sterling higher against its peers. All yesterday’s data has done is confirm the market’s suspicion that the Bank of England will need to raise interest rates at a rather aggressive pace this year.

Futures are now placing a near certainty of a hike in February, with 110 basis points priced in before the end of the year. BoE governor Andrew Bailey continued to stubbornly call some of the aspects of inflation ‘transitory’ during his speech yesterday, although he did raise concerns about tightness in the UK labour market and warn that the bank will do everything it can to control inflation.

While Bailey has already proved himself to be a worthy successor to Mark Carney ‘unreliable boyfriend’ mantra, this rhetoric ought to all but confirm that another hike is on the way when the monetary policy committee next convenes early next month.

20 Jan 202210.09 EST

Gwyn Topham

Back in the UK, there are signs of a growing return to office working in London, with 8% more journeys recorded on the London underground network compared with a week ago.

The increase came after the government ended work-from-home guidance immediately on Wednesday afternoon, with Sajid Javid claiming the Omicron coronavirus variant was “in retreat”, despite the number of new infections running at more than 100,000 a day.

Transport for London said 1.09m entry and exit “taps” with contactless cards or Oyster were recorded up to 10am on Thursday on the tube – about 80,000 more than last Thursday’s morning peak. Bus journeys were up 3% week on week, with 1.19m boarding taps recorded this morning.

Stocks in New York have made a brisk start to trading.

The Dow Jones industrial average of 30 major US companies has risen 355 points, or 1%, to 35,384 points.

The technology-focused Nasdaq has jumped by 1.5% to 14,563 points, having sunk into correction territory earlier this month.

After struggling in the last few weeks due to anxiety over looming interest rate rises, markets may be regaining some calm ahead of next week’s Federal Reserve meeting.

Fawad Razaqzada, analyst at Think Markets, says;

So far this year, volatility has been quite high as investors respond to high levels of inflation around the world, central bank policy tightening and another wave of coronavirus.

We have seen some global indices fall sharply, especially in the US, while others have continued higher or consolidated. US technology and small cap shares have taken the brunt of the sell-off due to rising bond yields, while banks and industrials have outperformed.

So, it has been quite a mixed start to the new year. With some of the major indices now testing key support levels, it is possible we may be heading for a period of relative calm as dip buyers take advantage of downbeat stocks and sectors.

The four-week average of US jobless claims, which smooths out weekly volatility, rose by 20,000 to 231,000, highest since late November.

Associated Press points out that if claims remain elevated, it could deter central bank policymakers from lifting interest rates as quickly as expected:

“We could see one more week of notably higher claims before they should top out,″ analysts with Contingent Macro Advisors predicted. “This bears close watching going forward.″

The Federal Reserve might reconsider plans to ease its massive support for the economy if claims stay above 250,000 as the Fed’s March policy meeting approaches, Contingent said.

Robert Frick, corporate economist at Navy Federal Credit Union, says Omicron seems to have led to the 55,000 increase in layoffs in the US last week:

“Weekly unemployment claims jumped 55,000 in the most recent week, and even with the usual noise in the numbers they seem to reflect the record rise in Coved-19 cases from Omicron.

Fortunately Omicron is peaking and if past patterns hold, claims should drop quickly in the next two to three weeks.”

Danel Zhao of Glassdoor says that demand for workers is still high, despite omicron slowing the recovery:

Mohamed El-Erian, chief economic advisor to Allianz, also blames Omicron.

Omicron has caused significant disruption in the US, as cases hit record levels above one milion per day. Supply chains have struggled leading to empty shelves, schools closed, flight were cancelled, and hospitals and emergency response departments were left understaffed.