Several economists are warning that the UK’s cost of living crisis will continue into next year, even though the pace of price rises across the country slowed a little in November.
The Resolution Foundation point out that poorer households are suffering an even higher inflation rate than average.
The effective inflation rate for the poorest tenth of household is around 12.1%, Resolution has calculated, while the richest tenth of households experience 9.4%.
Jack Leslie, senior economist at the Resolution Foundation, explains:
“Inflation fell at its fastest rate in 16 months in November, driven by falling fuel price inflation and a welcome slowing in food price inflation. Britain may now be past its inflation peak, which is good news for policy makers at both the Bank and Treasury as they grapple with rising interest rates and public debt.
“But with price rises still massively outstripping pay rises – and Britain’s poorest families facing an inflation rate of over 12 per cent – families are still getting poorer month-on-month, and the cost-of-living crisis will continue to deepen in 2023.”
Joe Nellis, professor of global economy at Cranfield School of Management, warns:
We are going to experience a sustained fall in living standards over the next two years the like of which we haven’t seen in 100 years.
We are in a precarious position.”
Nicholas Hyett, investment analyst at WealthClub, points out that higher interest rates will also add to the pressure on some households:
“While the annualised rate of inflation slowed in November, consumers are unlikely to feel any relief in the cost of living crisis. Prices overall continue to rise, with food prices in particular rising at their fastest rate in 45 years. What relief there is for consumers comes mostly in transport - but petrol prices have remained parked month-on-month rather than going into reverse.
This raises some difficult questions for policy makers. On the one hand headline inflation is easing, but whether that’s due to a weakening in local demand or simply global commodity prices is less clear. Areas like hospitality, which are more affected by domestic inflation, continue to see prices rise substantially, suggesting “core inflation” remains untamed. That’s a headache for central bankers - raising rates might help bring domestic inflation under control, but it will also exacerbate the cost of living crisis and potentially condemn the UK to a painful recession.
WSJ: Russian oligarch Vladimir Potanin faces US sanctions
The U.S. is moving to impose sanctions on one of Russia’s wealthiest men, VladimirPotanin, as well as on some of his financial companies, according to the Wall Street Journal.
Potanin, known as the “Nickel King”, is in the spotlight as Washington looks for ways to further clamp down on Russia amid the war in Ukraine.
The WSJ says:
The action, which could be announced as early as Thursday, is expected to include sanctions against Mr. Potanin, his wife Ekaterina Potanina and a yacht he owns, US officials said.
Also on the list, according to these officials: Interros, an investment holding company Mr. Potanin controls, and Rosbank, which Interros bought from Société Générale SA earlier this year.
The UK sanctioned Potanin back in June, saying he had continued “to amass wealth as he supports Putin’s regime, acquiring Rosbank, and shares in Tinkoff Bank in the period since Russia’s invasion of Ukraine”.
Potanin devised Russia’s infamous “loans for shares” programme in the 1990s, when he worked for Boris Yeltsin. He is now president and chairman of Siberian mining group NorilskNickel, a major Russian mining company.
According to the WSJ, US officials are keeping Nornickel off the list of sanctioned companies.
UK unions get go-ahead to challenge rules allowing agency staff to cover for strikers
The High Court has granted permission for a legal challenge against regulations allowing UK companies to hire agency staff to fill in for striking workers.
The legal challenge was brought by eleven trade unions, coordinated by the TUC, to protect the right to strike. They say the new rules could worsen industrial disputes and undermine the right to strike.
According to the TUC, a judicial review of these “anti-worker” regulations are expected to be heard in March.
The move is a “major blow” to government attempts to undermine the right to strike for better pay and conditions, they say.
The unions argue that the rules violate fundamental trade union rights, protected by Article 11 of the European Convention on Human Rights. They also argue that the then Secretary of State for business failed to consult unions, as required by the Employment Agencies Act 1973.
BREAKING 🚨 | The High Court has GRANTED permission for our legal challenge against strike-breaking agency worker regulations.
This a major blow for the government's attempts to undermine the right to strike.
TUC General Secretary Frances O’Grady said the government seems “hellbent” on attacking the right to strike at every opportunity.
“Threatening this right tilts the balance of power too far towards employers. It means workers can’t stand up for decent services and safety at work – or defend their jobs and pay.
“With inflation at an eyewatering 11%, ministers are shamelessly falling over themselves to find new ways to make it harder for working people to bargain for better pay and conditions.
“And these attacks on the right to strike are likely illegal. Ministers failed to consult with unions, as the law requires. And restricting the freedom to strike is a breach of international law.
“That’s why unions are coming together to challenge this change in the courts.
“Working people are suffering the longest and harshest wage squeeze in modern history. They need stronger legal protections and more power in the workplace to defend their living standards – not less.”
There are broader signals inflation might be nearing a turning point, including recent improvements in energy markets. Despite today’s good news, the decline in inflation is likely to be slow with and we expect the Bank of England will continue to raise interest rates.” -
UNISON general secretary Christina McAnea has warned that the small drop in inflation last month is “no comfort” for the public service workers whose pay rises are still a fraction of their rocketing bills.
McAnea fears that prices will keep rising:
“There’s clearly no end in sight to colossal price increases stretching budgets to the limit and beyond, particularly in the middle of this cold snap.
“It’s no wonder thousands of NHS workers, Environment Agency staff and others are striking or taking some form of action this month. Ministers need to stop washing their hands of any responsibility for wages and start talking about pay.
“Unless they begin negotiations to avert strikes, understaffing will worsen in public services, treatment times will grow and patients will suffer.”
Houses and roads covered with snow in north London on Monday, December 12, 2022, following heavy overnight snowfall. Photograph: Anadolu Agency/Getty Images
Train strikes and freezing weather have left London’s business districts quite deserted this week, data shows.
Office occupancy plunged to 22% in the capital on Tuesday, the first official day of the strikes — down from 51% a week earlier, according to figures from Freespace, a workplace company that tracks the data.
Ths data indicates that thousands of financial professionals work from home to avoid disrupted commutes.
It shows that:
The average UK office occupancy on Monday was 24%, a drop from 32% last Monday
The average London office occupancy on Monday was just 19%, a drop from 33% last Monday
The average UK office occupancy yesterday, Tuesday 13th December, was 28%, a drop from 47% last Tuesday
The average London office occupancy yesterday, Tuesday 13th December, was just 22%, down from 51% last Tuesday.
The energy crisis, and weakening demand, has hit factory production across the eurozone.
Industrial production in the euro area fell by 2% during October, new figures from Eurostat this morning show.
Production of durable consumer goods fell by 1.9%, while output of intermediate goods (used to make final products) dropped by 1.3% while heavy-duty capital goods production was down 0.6%. Production of energy fell by 3.9%.
The biggest monthly declines were seen in Ireland (-10.7%), Luxembourg (-4.4%) and Czechia (-3.7%).
Dutch bank ING warns that eurozone industrial production got off to poor start in fourth quarter
Overall, the trend in production is stagnant at the moment as production has moved more or less sideways since late 2020. Industry is dealing with slowing new orders but at the same time, is seeing some relief from easing supply-side problems. That dampens the negative impact on production to a degree as this results in some catch-up production.
This has resulted in a rebound in car manufacturing in recent months, for example.
💡 Eurozone industrial production off to poor start in fourth quarter (ING)
Inflation is falling in the UK and is likely to stay on a downward trajectory throughout next year. That’s the good news, my colleague Phillip Inman writes.
The bad news is that inflation will continue to be high relative to wages and pension incomes, eating into living standards.
The Bank of England is poised to make the situation even worse with an anticipated increase in interest rates when its policymakers meet on Thursday that will tighten an already excruciating financial tourniquet on mortgage holders.
Renters cannot escape higher mortgage costs either, now that every landlord in the country, from the major corporations to the individual buy-to-letter, is mortgaged up to the hilt. They pass on the cost of loans to renters, many of them trapped in the sector because they lack a deposit to buy a home.
Businesses will also feel the pinch from higher interest charges, especially if they have found it necessary to borrow heavily through the coronavirus pandemic and the more recent period of escalating energy costs.
No wonder that the biggest contributor to inflation in November was the hotel, hospitality and restaurant sector, which consumes large amounts of energy relative to other costs and must find it difficult to cut back without presenting customers with a woolly blanket and cold food.
Underlying inflation across the UK, as measured by the NIESR economic research institute, hit a record high last month.
NIESR reports that underlying inflation, which excludes 5% of the highest and lowest price changes,rose to a new series high of 9.0% from 8.8% in October.
They argue that the Bank of England should raise its policy rate again at noon tomorrow, when it is due to announce its monetary policy decision.
Paula Bejarano Carbo, associate economist at NIESR, explains:
“Today’s ONS estimates suggest that annual CPI inflation decreased to 10.7 per cent in November from 11.1 per cent in October, mainly driven by a fall in transport costs.
Though the yearly rate has fallen between October and November, NIESR’s measure of trimmed-mean inflation increased to a new series high of 9.0 per cent in November from 8.8 per cent in October, indicating that underlying inflation remains high and persistent.
This signals the need for the MPC to raise its policy rate further at its meeting tomorrow, despite Monday’s anaemic GDP number.”
⚠️ Our latest #NIESRCPI Tracker suggests underlying #inflation rose to a new series high of 9.0% from 8.8% in October whilst trimmed-mean inflation increased in each of the 12 UK regions in November⚡️
— National Institute of Economic and Social Research (@NIESRorg) December 14, 2022
⚡️Given today’s data, we would argue that the MPC should raise its policy rate further (representing a ninth consecutive rate hike) at its meeting tomorrow
A third of UK hospitality firms have been forced to cut their opening hours this Christmas due to staff shortages.
A survye by trade body UKHospitality (online here) has also found that 35% plan to simplify menus, while 13% will be open on fewer days, all because of staffing shortages.
UKHospitality chief executive Kate Nicholls says workforce challenges have become a fixture for hospitality businesses.
We are facing a systemic problem that has persisted for years and it needs urgent attention from Government.
It’s so disappointing that businesses are having to go to such lengths such as simplifying menus and reducing trading hours to deal with this. It’s also doing the consumer a disservice, limiting choice and availability.
“There are very simple measures available to the Government that can free up the immigration system and make a huge difference to business. Expanding the Youth Mobility Scheme to the EU27, for example, would do wonders to add good numbers of people to the available labour pool.
Over in parliament, prime minister Rishi Sunak has warned that the government is ‘closely monitoring’ the performance of rail company Avanti on the West Coast mainline.
John Stevenson (Con) says West Coast rail passengers have having terrible experiences. If Avanti does not get its act together, will the government cancel their franchise?
Sunak says the government supports the restoration of services before taking long-term decisions. It will be closely monitoring Avanti’s performance.
Last weekend, the Observer reported that Britain’s most powerful mayors have warned Avanti that it will be stripped of its contracts by the end of the year without a significant improvement in its service.
Whiteson points out that government restrictions on creditors taking action, introduced during the pandemic, were all removed by March this year:
Since June, with the exception of September, figures have steadily climbed month on month so that the November figures are 19% higher than those for June.
It would be “unsurprising” if the situation was worsening for businesses, Whiteson adds:
High fuel prices, inflation, labour shortages, post Brexit difficulties with international shipping, uncertainty in capital markets, raising interest rates and geo-political uncertainty all pose difficulties for businesses.
"Small number" of UK pensions worse off after LDI crisis, says regulator
A “small number” of UK defined benefit pensions schemes are worse off after the market chaos after Septemnber’s mini-budget, MPs have heard today.
The chief executive of The Pensions Regulator, CharlesCounsell, told parliament’s Work and Pensions Committee that some pension schemes will have seen their funding levels worsen after the gilt market crisis triggered by liability-driven investments (LDI).
Counsell told MPs:
“The majority of schemes are in a better place”
but added that for a “small number of schemes...their funding levels will have worsened”.
Many pension schemes had used LDI strategies to protect themselves against risks to their liabilities.
But once gilt prices tumbled, as government borrowing costs surged after the mini-budget, LDI funds were forced to sell assets in a ‘fire sale’ to cover losses on those strategies. This forced the Bank of England to step in, guaranteeing to buy £65bn of gilts to put a floor under prices.
The yield, or interest rate, on 30-year UK government bonds surged from 3.5% to around 5% before the Bank of England stepped in – or 150 basis points.
Counsell told the Work and Pensions Committee that lessons need to be learned:
“What happened at the end of September was extraordinary movements, absolutely unprecedented movements. “Obviously, we have asked ourselves the questions of what lessons we have got to learn from that. It is clear that the levels of collateral weren’t sufficient
You have got to ask questions as a regulator as how much you do push companies. Quite often we are accused of putting too much burden on our regulated community.
Given what had happened in movements in yields historically, the movements of 100 basis points seemed plausible, but pretty unlikely. As it happened, something much worse happened.”
Insolvencies jump 21% in England and Wales as firms struggle
The number of companies falling into insolvency across England and Wales has jumped by a fifth, year-on year.
New government data shows there were 2,029 company insolvencies in England and Wales in November.
That is 21% higher than in the same month in the previous year (there were 1,676 in November 2021), and 35% higher than the number registered before the pandemic (1,505 insolvencies were recorded in November 2019).
Photograph: The Insolvency Service
Andy Davis, strategic advice director at restructuring firm Azets, warns that liquidations will continue rising as inflation, interest rates at Brexit all hit businsses.
“These latest insolvency statistics for November continue the trend over the last three years and evidence a significant increase in the volume of companies feeling financial stress. This increase is largely being driven by higher Creditors’ Voluntary Liquidations (CVLs) and compulsory liquidations.
“We are already seeing an uptick in the number of companies facing financial pressure, as the obvious impacts of inflation, interest rates, input costs, plus Brexit continue to bite. It is also much harder for firms to build reliable forecasts at this stage, given the current economic and macro uncertainties, this in turn makes raising additional liquidity or capital more challenging.
Waiting until there is a liquidity crunch is just too late, Davis adds, so directors should (he says) seek advice and support at an early stage to help them avoid insolvency.
The food and drink industry has blamed higher costs, such as energy and raw materials, for the jump in prices of food in the shops.
The Food and Drink Federation chief executive KarenBetts warns that producers face the risk of even higher energy bills in the spring, once the government’s support for non-domestic users ends (we’re waiting to hear what new support might be available).
Betts says:
“The price of food and drink is continuing to rise, with food and drink price inflation hitting 16.5% today. Manufacturers continue to see persistent rises in their key costs – from ingredients to logistics, packaging and labour costs. Despite their best efforts to find efficiency savings, some price rises are having to be passed through to consumers.
“Energy still accounts for a significant portion of companies’ costs and we are seeking urgent clarity from government on what energy support will be available to the food and drink supply chain in the Spring. The withdrawal of support will undoubtedly put further pressure on food and drink prices. There also remain low cost and high impact measures government could take to reduce unnecessary regulatory burdens on businesses in our sector, which would help curb inflation too”
House prices inched up in October, according to the latest Land Registry data from the Office for National Statistics.
It shows that the average UK house price was £296,422 in October, up from September’s £295,528.
On an annual basis, average UK house prices were 12.6% higher than in October 2021, up from 9.9% in September
[the increase in the annual percentage change was partly caused by a sharp fall in UK average house prices in October 2021, following changes to Stamp Duty Land Tax]
Back in Oct the AVG UK house price leapt 12.6% from 9.9% in Sep to £296,000, £33,000 higher than this time last year & little changed from last month. But %’s can be deceiving as this hike is due to the sharp fall in UK avg house prices in Oct 2021, post SDLT changes @ONSpic.twitter.com/GCAznSLhPb
Average house prices increased over the year to £316,000 (13.2%) in England, to £224,000 in Wales (11.8%), to £195,000 in Scotland (8.5%) and to £176,000 in Northern Ireland (10.7%).
Prices rose fastest in the NorthEast, where housing inflation hit 17.3%, and slowest in London, where prices were 6.7% higher than a year ago.
Back in OCT 2022 London was the first region to feel the cold snap coming. As the monthly change to AVG house prices turned bitter @onspic.twitter.com/1v6pfanpi0
Despite that, the NorthEast continued to have the lowest average house price of all English regions, at £168,000 in October 2022, which is a record high for the region.
Poorer households are 'going under and going without', warns JRF
The government support has not been sufficient to stem the rising tide of hardship for millions of families on the lowest incomes across the UK, warns anti-poverty charity the Joseph Rowntree Foundation (JRF).
A new JRF report has found that 7.2m low-income households are going without the basics, with 4.7m now behind on their bills.
JFR senior econonomist RachelleEarwaker says:
We find that it is households on the very lowest incomes who are struggling the most, with three quarters of those in the bottom 20% of incomes going without food or other basic essentials like clothing or toiletries.
People on Universal Credit (UC), private renters and young adults are all seeing rising and worrying levels of hardship.
📢 NEW: Our latest #CostofLiving survey results reveal the severe levels of hardship low-income families are enduring this winter. With #inflation at 10.7%, Government interventions haven’t gone nearly far enough to outweigh the woeful inadequacy of our social security system. 🧵 pic.twitter.com/q9OZEOWBif
And the impact of high-cost credit loans are scary. Between May and October, the proportion of low income households with them increased across each type of loan. But the scariest thing is that half of all households with one are in arrears with their loans. 11/x pic.twitter.com/AqAaT7SsTH
The JRF warns that “Struggling households can’t wait until April 2023.” [when working age benefits and the state pension will rise in line with September’s inflation reading of 10.1%]….
…and have several recommendations for ministers, to help fight the cost of living crisis:
Provide additional cost of living payments, including at least £450 to those on means tested benefits, this winter.
Make changes to Universal Credit so that the basic rate of support, even after deductions such as debt repayments to Government, can never be so low that people are unable to afford essentials such as food, utility bills and basic household goods.
Help people keep up with their rent by unfreezing Local Housing Allowance and reinstating it to cover the bottom 30th percentile of rents.
Implement a strong campaign for benefit take-up so everyone receives the the support that is meant for them.
Stop unaffordable debt collection practices by Government.
Full report is here - please read it, and share it. It's so frightening and so important that decision makers understand the impact of what's happening for those on the lowest incomes. https://t.co/uW1lnItcCm
Spanish clothing group Inditex has posted a 24% increase in net profit for the first nine months of its fiscal year, highlighting how prices have been rising on the high street this year.
Inditex, which owns the Zara chain, hiked its prices to offset weakening global demand for clothing.
The world’s biggest fashion retailer’s store and online sales rose 19% from a year ago, slightly faster than analysts had expected. It has raised prices by 5% or more since the spring to offset rising costs.
The company’s net profit in February-October reached €3.1bn ($3.3 billion), up from €2.5bn a year ago.
Inditex has performed well since Marta Ortega, the daughter of the founder-owner Amancio Ortega, took the helm as non-executive chair in April.
Known for its ability to quickly deliver the latest designs to consumers thanks to its flexible sourcing, Inditex has lately been offering more “high fashion” Zara pieces designed for special occasions.
The approach has allowed it to sell higher-priced items and attract shoppers from the luxury segment of the market, according to company sources and analysts.
The fashion retailer is known for its competitive pricing and its ability to move nimbly to offer the latest trends to consumers. This helped Zara’s parent company enjoy strong top and bottom-line growth during the first three quarters of the year.
However, Inditex is not immune to the deteriorating economic outlook with the threat of recession in the UK, Spain and elsewhere putting pressure on the consumer and weighing on sales during the all-important run-up to Christmas. Zara has been trying to attract customers at the higher end who are less sensitive to cost-of-living pressures.
It has been branching out into higher priced product ranges including skiwear and lingerie.
UK inflation declined at the sharpest rate in 16 months to 10.7% in November as the momentum behind the rising cost of clothing and petrol began to ease amid growing fears of a long recession, my colleague Phillip Inman writes.
The drop in the consumer prices index figure was slightly bigger than expected by most City analysts, who forecast the annual rate of price rises would slide to 10.9% last month, from 11.1% in October.
However, prices were still rising, albeit at a slower rate, and the increasing costs will add to the pressure on ministers to put up wages across the public sector to close the gap between earnings and rising prices.
The measure of inflation used by most trade unions as the basis for annual pay claims – the retail prices index – fell only marginally from 14.2% to 14% in November.
Forecasts of a recession lasting until the end of 2023 have triggered falls in the price of crude oil since last year, bringing down the cost of transport. Meanwhile, the rising cost of clothing has begun to wane, forcing retailers in Europe and the US to increase stockpiles as consumers pull back from replenishing their wardrobes.
Fuel prices rose by 17.2% in the year to November 2022, down from a 22.2% increase in the year to October, while prices of clothing and footwear rose by 7.5% – down from an 8.5% annual inflation rate in October.
