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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

US inflation surges to 39-year high of 6.8%; UK economy slows to a crawl – as it happened

A Los Angeles gas station last month.
A Los Angeles gas station last month. Photograph: Chris Delmas/AFP/Getty Images

Closing summary

Time to wrap up for the week. Here are today’s main stories:

Goodnight, and best wishes for the weekend. GW

European market close

European stock markets have ended the day lower, with Omicron, inflation, and the UK’s faltering growth all occupying traders’ minds.

The FTSE 100 index of blue-chip shares in London ended nearly 30 points lower at 7,291, down 0.4% today.

Cyber-security firm Darktrace was the top faller, down 4.2% (it’s already being ejected from the FTSE 100 in this month’s reshuffle, due to its value dropping this autumn).

Online grocer Ocado (-2.9%), DIY retailer Kingfisher (-2.5%), and high street group JD Sports (2.2%) were also in the fallers.

France’s CAC lost 0.25%, while Germany’s DAX inched down by 0.1%.

Oliver Males of SpreadEx says:

The UK GDP figures were released this morning, which disappointed many, as it showed minimal growth of 0.1%.

Economists had forecast 0.4% growth, but the ongoing supply chain issues, and staff shortages have obviously negatively impacted this figure.

Adding to the pessimism was Heathrow’s warning of further restrictions badly affecting the travel industry once more, as demand for November has already dropped 60%.

The UK market in particular fell lower after a leading economist, Sanjay Raja, from Deutsche Bank, announced that Plan B will see GDP growth dip into negative territory for at least December and January.

US consumer confidence is likely to come another pressure if America’s inflationary pressures don’t fade soon, points out Edward Moya of OANDA:

Despite today’s rebound, consumer sentiment still looks vulnerable and will likely struggle if these widespread price increases continue.

November’s headline month-over-month CPI reading increased 0.8% was higher than the 0.7% estimate but lower than the prior month’s reading of 0.9%. Some of the inflation is moderating but the year over year reading came in at 6.8%, the hottest since 1982.

Broad based price increases had groceries (meat, poultry, fish, and eggs) skyrocket 12.8%, airline prices were up 4.7%, energy costs were 3.5% higher (gasoline delivered another 6.1% increase), new vehicles rose 1.1%, while used cars increased 2.5% and apparel climbed 1.3%.

US consumer confidence has risen unexpectedly, with less-well-off families anticipating a jump in their pay that would cushion the impact of rising inflation.

The University of Michigan’s closely watched Consumer Sentiment Index rose to 70.4 this month, up from the decade low of 67.4 in November.

Readings of both current conditions and future expectations also improved unexpectedly.

The increase in headline sentiment was driven by a 23.6% improvement among households in the lower one-third of the survey’s income distribution, the biggest monthly increase for that group since 1980, says Reuters. This was driven by expectations of improving incomes in the year ahead.

Middle income and wealthier households became less optimistic, though.

It’s been an expensive day for Spanish bank Santander.

A Madrid court ordered Santander to pay Italian banker Andrea Orcel €67.8m after it withdrew its offer to make him CEO, the latest move in a long-running employment dispute that has gripped high finance.

Santander originally announced Andrea Orcel’s appointment in September 2018, but dramatically changed its mind in January 2019 after concluding that compensating him for deferred pay awards built up at UBS would be too expensive.

Orcel, who had already quit his post as head of UBS’s investment bank when Santander dropped its offer, sued Santander for €100m.

Santander has said it would appeal against today’s decision.

Orcel had been a star dealmaker before Santander’s approach and u-turn, a move which broke a close professional bond between Orcel and Santander’s chairman Ana Botin.

The FT says:

The ruling is a significant blow for Ana Botín, executive chair of the Spanish lender, whose tenure since succeeding her father Emilio Botín has been marked by the decision first to hire Orcel, long a confidant of her family, and then to drop him, with the resulting legal fight.

LV= says it will swiftly reassess its strategic options, after seeing its Bain takeover sunk by its members today.

The mutual insists it has an “appropriate capital position”, but that continuing as things stand isn’t in the best interest of members, due to the level of investment it needs, and its declining base of ‘with-profits’ members.

Royal London, the UK’s largest mutual, has moved swiftly, revealing it is proposing a merger will let LV= customers have their life savings protected and invested by a mutual. An earlier approach from Royal London had been rejected by LV=.

LV=’s chairman, Alan Cook, says he plans to step down as soon as a way forward is agreed.

LV= members reject £530m Bain takeover

Back in the UK, members of the 178-year-old mutual insurer LV= have rejected a controversial takeover by US private equity firm Bain Capital.

Just 69% of LV= members who voted today approved the £530m deal, which would have end the firm’s member-owned status and put it in the hands of Bain.

The deal needed 75% approval, so this vote scuppers a year-long campaign by the LV=’s board to secure backing for its preferred bidder

The rejection follows concerns that the former Liverpool Victoria was being sold too cheaply, and that the deal would lead to worse payouts for customers and poorer customer service.

LV= says this result will have no impact on trading, as the business will continue to serve its customers as usual and member policies remain secure and protected by the same safeguards.

LV= had argued that the deal would mean significant financial benefits for members. But the proposed demutualisation of one of Britain’s oldest and largest customer-owned businesses has attracted criticism, with policyholders set to receive just £100 and give up their ownership rights.

Alan Cook, chairman of LV=, said the mutual was disappointed with today’s result:

“We are deeply appreciative of the members who took the time to vote. Our priority has always been to put the interests of LV=’s members first, and, in particular With-profits policyholders, who share in the Group’s risks.

Although 69% of voting members supported the Board’s recommendation and voted in favour of the transaction with Bain Capital, the Board is disappointed not to have achieved the outcome that we believed was in the best interests of LV= and its members.”

Updated

Higher-then-expected inflation is the biggest risk to the markets in 2022, according to a survey of over 750 financial professionals conducted by Deutsche Bank.

The poll found that:

  • The biggest risk remains higher than expected inflation. Commensurate with that, an aggressive Fed tightening cycle came in at number two. Vaccine-escaping variants were close behind in the top three, after dropping out last month.

  • Most respondents expect growth to decrease below consensus economists’ expectation in 2022 but still above trend, and for ten-year Treasury and Bund yields to increase but with Bund yields increasing more. The next US recession is expected by 2024 by most, but with only 4% thinking 2022.

  • The average expected return for the S&P 500 next year was just 4.2%, well below average annual returns over the last decade.

  • US CPI is expected to remain above target at the end of next year (3.8%), and average expectations for the next five years continue to drift higher (2.7%).
Predictions for US inflation next year

The poll also found that the US Federal Reserve is overwhelmingly expected to finish its asset-purchase stimulus programme in the first half of 2022.

And bitcoin is seen as more likely to halve than double, although those under 35 had the opposite view, and there was broad agreement that the French presidential election won’t rock the markets.

US inflation might be close to its peak, which would bring some relief to squeezed families.

Paul Ashworth, chief North America economist at Capital Economics, explains:

Consumer prices rose by 0.8% m/m in November, taking the annual CPI inflation rate up to a near 40-year high of 6.8% but, with energy prices falling sharply in recent weeks, last month probably marked the peak.

The same is not true for core consumer price inflation, however, which accelerated to 4.9% last month and will peak at around 5.5% sometime in the first quarter of next year.

US crude oil fell from over $85/barrel in late October to below $65 last week, when the Omicron variant threatened to hurt global growth. But crude price have risen this week, back to around $71/barrel today.

The New York Stock Exchange
The New York Stock Exchange Photograph: Anadolu Agency/Getty Images

Stocks have opened higher on Wall Street, perhaps on relief that the CPI report was broadly in line with forecasts.

The Dow Jones industrial average has risen by 183 points, or 0.5%, to 35,938 points, led by enterprise software firm Salesforce (+1.9%), chemicals group Dow Inc (+1.5%) and Microsoft (+1.5%).

Fiona Cincotta, senior financial markets analyst at City Index, says investors may have feared an even sharper jump in inflation. That could have led to an earlier rise in US interest rates to cool price pressures, slowing the economy.

Cincotta says:

The inline year on year reading plus the slight move lower in the monthly read appears to have eased bets of a sooner rate rise by the Fed. That or the market had built itself up for a much higher reading

The initial reaction has seen the US Dollar fall and stocks rise with high growth tech stocks leading the charge; moves consistent with easing hawkish Fed expectations. However, the initial knee jerk reaction isn’t always the one that stays....

US inflation hits 6.8%: reaction

American inflation is now its highest since Ronald Reagan’s first term in the White House.

And that puts more pressure on the Federal Reserve to wrap up its asset-purchase scheme more quickly, experts says.

Dan Boardman-Weston, CIO at BRI Wealth Management, says strong demand and supply chain disruption pushed up inflation (plus, there’s a ‘base effect’ as some prices were dampened by the pandemic last year):

“US inflation came in at 6.8%, up from 6.2% in October and in line with forecasts. The reading which is the highest level in nearly 40 years comes as little surprise to the market due to the ongoing supply chain issues, robust consumer demand and base effects from last year kicking in.

This is likely to add further pressure to the Fed to quicken the withdrawal of quantitative easing and raise interest rates sooner than expected. There could be hesitancy from the Fed due to the potential impact that Omicron may have on the economy in the coming months but it’s unlikely this will significantly alter the growth trajectory of the economy.

The US economy is in rude health and doesn’t require crisis levels of quantitative easing or interest rates and so it remains our view that policy will become tighter.

It is important to note that whilst inflation is high and getting higher, the supply chain issues, the high levels of demand and base effects are likely to prove transitory and we continue to believe inflation will move lower over the coming year.”

Greg Daco of Oxford Economics warns that inflation will get worse early next year, before cooling:

The Fed meets next week to set monetary policy, and could well speed up the ‘tapering’ of its asset purchase program. Last month, it began cutting $15bn/month off its bond purchases (which had been running at $120bn/month).

Robert Alster, CIO of Close Brothers Asset Management, thinks the Fed could accelerate the taper... but might also be concerned about the impact of the Omicron variant on the global economy.

“Inflation has broadened out across the CPI basket, putting greater pressure on the Fed to address the so-called ‘transitory’ factors that are keeping prices high. While the cost of living is going up and up, all support measures have expired and no new ones have been introduced, which will likely dent consumer confidence. And rising rental equivalent costs continue to spiral in the background, indicating longer-term inflationary problems.

“In this pressure cooker, the Fed isn’t afraid to be more hawkish. Powell has already made it clear that there’s a strong chance of accelerating tightening measures, which could mean quickly tapering purchases to facilitate an interest rate hike down the line.

But the global economy is at a serious juncture thanks to the emergence of the Omicron variant this month. Only time will tell what the impact will be, and how far it will upset the Fed’s plans in the new year.”

Core inflation highest since 1991

Core inflation, which strips out food and energy price changes, has hit its highest level in 30 years.

The index for all items less food and energy rose 4.9% over the past 12 months, its largest 12-month increase since June 1991.

That rise included the 31% jump in used US car and truck prices, a 3.8% increase in shelter (the cost of housing), and a 1.7% increase in medical care costs.

Over the last 12 months, US energy prices have jumped by 33.3%, driving up the wider inflation rate.

The price of food has jumped 6.4% annually, while food prices away from home (eg at restaurants and bars) are 5.8% higher.

New vehicle prices are up 11.1%, while used cars and trucks are over 31% pricier than a year ago (partly because shortages of semiconductors have hit new car production).

Here’s a breakdown of some of the key price moves:

Some snap reaction:

US inflation hits 6.8%, highest since 1982

Inflation in the US has hit its highest level since June 1982, as rising energy prices, gasoline at the pumps and pricier food all hit American families.

The consumer prices index jumped by 6.8% over the 12 months to November, the U.S. Bureau of Labor Statistics reports, meaning inflation is running at its hottest in almost 40 years.

In November alone, prices jumped by 0.8%, having risen by 0.9% in October.

Prices rose broadly, the BLS reports, with gasoline, shelter, food, used cars and trucks, and new vehicles all among the larger contributors.

The energy index rose 3.5% in November, while the gasoline index jumped 6.1% as motorists paid more to fill up their tanks.

Food became more expensive too - the food index increased 0.7%, with ‘food at home; rising by 0.8% during the month.

Updated

Economists predict that US inflation could hit its highest level in almost 40 years in today’s report.

Experts polled by Reuters predicted that US consumer prices rose at an annual rate of 6.8% in November, almost a four-decade high, up from 6.2% in October.

Yesterday, President Joe Biden told Americans that rises in energy costs and other key goods were starting to ease, which wouldn’t show up in today’s CPI report, saying:

The information being released tomorrow on energy in November does not reflect today’s reality, and it does not reflect the expected price decreases in the weeks and months ahead, such as in the auto market.

That was taken as a sign that the White House was bracing for a high inflation reading for November....

European stock markets are quite becalmed today, as investors await November’s US inflation report in around 40 minutes, which is likely to show another jump in the cost of living in America.

The pan-European Stoxx 600 is down slightly, while the FTSE 100 is flat following this morning’s weak GDP report.

European stock markets, December 10 2021
European stock markets today Photograph: Refinitiv

Jim Reid, strategist at Deutsche Bank, says the reality of the new Omicron restrictions in various places soured the mood yesterday (which seems to have carried through to today)

He writes:

Even as the news on Omicron’s severity has remained positive, concern is still elevated that this good news on severity could be outweighed by a rise in transmissibility, which ultimately would lead to a higher absolute number of both infections and hospitalisations.

Even if it doesn’t, it seems restrictions are mounting while we wait and see.

Bloomberg:Public satisfaction with Bank of England at nine-year low

Here’s Bloomberg’s take on the UK public’s rising worries about inflation (see details here).

The U.K. public’s expectations for inflation over the next year jumped by the most since 2016 last month, with Britons saying they were the least satisfied about how the Bank of England was doing its job in almost a decade.

A survey commissioned by the central bank found the median estimate for price gains in the next 12 months was 3.2%, the most since 2019 and a jump from 2.7% in August. Looking over the next five years, the figure was 3.1%.

Both those estimates are well above the central bank’s 2% target.

When asked to assess the way the BOE is “doing its job to set interest rates to control inflation,” the net satisfaction balance – the proportion satisfied minus the proportion dissatisfied – was 14%, the lowest since 2012.

More here.

More details on the rise in inflation expectations....

....and the drop in public satisfaction with the Bank of England:

Analysis: UK economy risks heading into reverse without more support

October’s GDP report shows that Britain’s economy was showing “worrying signs of weakness” even before the emergence of the coronavirus Omicron variant, our economics correspondent Richard Partington writes.

And with worse likely yet to come, the government should offer more help to support the economy now, he explains:

On the positive side, the latest figures show the economy is within a hair’s breadth of its pre-Covid position, at only 0.5% below February 2020 levels. The new restrictions announced so far remain relatively light-touch, while there are hopes that tougher measures may not be required, thanks to steady progress with the vaccine booster programme.

However, pressure is clearly building on an economy that was already struggling for momentum before the new variant emerged, while there is heightened uncertainty over the next stage in a pandemic that is far from over.

Faced with these risks, the chancellor, Rishi Sunak, said he had always acknowledged there would be “bumps on the road” to recovery but the government already had in place an “ongoing £400bn economic support package” to keep the country on track.

That’s an odd way to describe a programme that has been largely dismantled over recent months, ostensibly because Sunak believed a return to economic normality was on the cards. The furlough scheme has gone, universal credit has been slashed and several tax breaks have been reversed.

Business leaders are stepping up their warnings that failure to provide renewed support measures could squander the progress made in the economy since the easing of lockdown earlier this year; especially in the sectors most exposed to the Omicron wave, such as hospitality, travel and leisure.

More here:

Investing in Lego is more lucrative than gold, art and wine, according to a study which might send readers scrambling through their old toys.

It found that the market for secondhand Lego rises in value by 11% annually, which it says is a faster and better rate of return than gold, stocks, bonds, stamps and wine.

Researchers at the Higher School of Economics in Russia said that there could be lucrative gains to be made from investing in “more unusual goods whose purchase might seem less serious”, such as Lego sets, Barbie dolls, superhero mini figures, or model cars and trains.

“We are used to thinking that people buy such items as jewellery, antiques or artworks as an investment,” said Victoria Dobrynskaya, an associate professor at the Faculty of Economic Sciences at HSE.

“However, there are other options, such as collectible toys. Tens of thousands of deals are made on the secondary Lego market. Even taking into account the small prices of most sets, this is a huge market that is not well known by traditional investors.”

The most expensive sets include the Millennium Falcon, Death Star II and Imperial Star Destroyer from Star Wars, as well as the Taj Mahal.

A glass of sherry

Britons partial to a festive glass of port or sherry should nurse it carefully this Christmas as a shake-up of alcohol taxes threatens to add at least £1 to bottle prices next year.

The chancellor announced a sweeping overhaul of alcohol duties in the budget, reducing the tax take on lower-strength drinks, such as draught beer, but increasing them on products, such as fortified wine, with an alcohol content above 11%.

Andrew Hawes, the managing director of the wine importer Mentzendorff, said port and sherry fans were about to be hit with the “largest single alcohol tax rise in UK history”. UK shoppers buy 10m bottles of sherry and close to 9m bottles of port each year.

More here:

Pound near one-year lows after GDP miss

Sterling is wallowing around its lowest levels in a year today, after the UK’s disappointing GDP figures.

The pound has dropped below $1.32, down 0.15% today, as investors digest October’s slowdown. That takes sterling towards the 12-month lows on Wednesday when news of new Covid-19 restrictions broke.

With growth weak in October, Omicron hitting the travel sector, and ‘Plan B’ likely to hurt hospitality, there’s little cheer in the City today.

The pound vs the US dollar over the last year
The pound vs the US dollar over the last year Photograph: Refinitiv

Raffi Boyadjian, lead investment analyst at XM, says:

Britain’s economy barely grew in October as supply chain issues capped industrial output. The data has further dashed expectations that the Bank of England will raise interest rates next week.

UK public inflation expectations jump

The UK public’s inflation expectations have jumped, as the cost of living squeeze drives home the impact of rising prices on households.

Inflation expectations for the year ahead have jumped to 3.2%, up from 2.7% in August, research conducted by the Bank of England shows.

That’s significantly above the BoE’s target of 2%, and follows the surge in energy costs, petrol and food bills which pushed the consumer price index to a 10-year high of 4.2% in October.

Long-term inflation expectations (say, in five years time) inched up too, to 3.1% from 3% in August.

The survey also shows that the public are increasingly unhappy with the Bank of England’s control of prices.

The balance between people satisfied, or dissatisfied, with the way the BoE is ‘doing its job to set interest rates to control inflation’ fell to +14%, down from +18% in August 2021 and +24% in May 2021.

Just 33% were satisfied, the same as three months ago, which was the joint lowest level since the survey started in 1999. The proportion dissatisfied rose to 19%, from 15%.

Updated

Primark on Oxford Street on Black Friday.
Primark on Oxford Street on Black Friday. Photograph: Jack Dredd/REX/Shutterstock

Discount fashion chain Primark says it hasn’t seen much impact from the Omicron variant.

John Bason, finance director of Primark’s owner Associated British Foods told Reuters that:

“In terms of the Omicron variant we haven’t really seen much of an effect on footfall.

We’re trading well over Christmas.”

Trading at Primark this financial year, since 19th September, has been ahead of expectations, ABF says, with like-for-like sales above the previous quarter despite supply chain disruption.

Its grocery, sugar, ingredients and agriculture operations are being hit by delays at the ports and the shortage of lorry drivers, plus rising costs - some of which will be passed onto customers.

ABF’s chairman, Michael McLintock, will tell its AGM today that:

Trading to date in our new financial year across Grocery, Sugar, Ingredients and Agriculture has been in line with expectations.

We are experiencing the impact of widely reported port congestion and road freight limitations and our businesses have been working hard to overcome these difficulties. We have seen an escalation in the cost of energy, logistics and commodities and we have been implementing plans to offset these through operational cost savings and, where necessary, the implementation of price increases.

Heathrow passenger numbers down 60% as cancellations mount

Passengers are seen at Heathrow Airport in London, on 30th November.
Passengers are seen at Heathrow Airport in London, on 30th November. Photograph: Xinhua/REX/Shutterstock

The Omicron variant has hit Heathrow airport, with some business travellers cancelling flights as governments around the world impose travel restrictions.

Heathrow reported that new government-imposed travel restrictions had further dampened passenger confidence. Demand last month was 60% lower than pre-pandemic levels, despite the US reopening its borders to fully vaccinated passengers.

My colleague Mark Sweney explains:

Heathrow has said passenger numbers were 60% lower in November than before the coronavirus pandemic and there were “high cancellations” among business travellers concerned about being trapped overseas for Christmas as Omicron spreads.

The UK’s largest airport said the government’s travel restrictions had dealt a fresh blow to travel confidence and predicted it was likely to take several years for passenger numbers to return to pre-pandemic levels.

This week ministers said passengers arriving in the UK would have to take a pre-departure Covid test, as well as a post-flight test, because of fears about the spread of the new variant.

Full story: UK growth virtually stalled in October, even before Omicron

Britain’s economic recovery had almost come to a halt even before the onset of the new Omicron variant of Covid-19, official figures have shown.

The Office for National Statistics said in that October, the first month after the end of the government’s furlough scheme, output grew by only 0.1%.

The slight monthly rise in gross domestic product was weaker than had been anticipated, with a poll of economists having expected growth of 0.4%. In September the economy grew by 0.6%.

UK GDP is estimated to have grown by 0.1% in October 2021 but remains 0.5% below its pre-pandemic level
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Guardian graphic | Source: ONS

A breakdown of the data showed signs of a sharp drop in people going to restaurants, pubs and bars even before tougher curbs were brought in this month. Gross domestic product was still 0.5% below its pre-crisis peak in February 2020 at the end of October.

Of the three main sectors of the economy, only services expanded in October, with higher spending in the shops and an increase in face-to-face GP appointments contributing to a 0.4% rise.

However, production, which includes manufacturing, energy and North Sea oil and gas, was down 0.6%, while a shortage of materials because of supply chain problems resulted in a 1.8% drop in construction output, the steepest since the start of the pandemic in April 2020.

Here’s the full story:

Weak growth in October and Omicron mean outlook has deteriorated

Many experts are warning that the UK’s sharp slowdown in October shows the economic outlook has deteriorated.

James Smith, research director at the Resolution Foundation, says the government may need to provide more economic support, as the pandemic crisis clearly won’t be over by Christmas:

“Today’s GDP data shows a worrying slowing in growth in October, meaning that monthly output is still 0.5% below its pre-pandemic level as on-going supply-chain disruptions continue to hold back production in some sectors.

“Weak growth in October and the more recent emergence of Omicron mean hopes that either the health or economic pain of this crisis would be all over by Christmas have been dashed.

The possibility that restrictions will need to be tightened, combined with high inflation and rising energy bills, means Government should prepare for fresh targeted economic support that may be necessary in the months ahead.”

Samuel Tombs of Capital Economics points out that many UK firms were struggling this autumn, even before the Omicron variant emerged.

Andrew Sentance, a former Bank of England policymaker, agrees that the economic prospects for 2022 look weaker:

Paul Craig, portfolio manager at Quilter Investors, also says the pace of growth is slowing, as the economy took another small step closer to pre-Covid levels.

Unsurprisingly, some sectors continue to struggle, he says:

October saw production output decrease by 0.6%, with electricity and gas lowering by 2.9% and mining and quarrying by 5.0%. Construction also struggled, as output dipped by 1.8% - the largest fall since April 2020.

“Overall, the pace of growth appears to be slowing, and some downside surprises are emerging – partly as a result of the ‘catch-up’ already seen in the data, as well as the effects of labour shortages spurred on by Brexit, supply bottlenecks, and Covid more generally.

October’s slowdown will further complicate the dilemma facing the Bank of England when it sets UK interest rates next week, says Mohamed El-Erian, chief economic advisor to Allianz:

Debapratim De, senior economist at Deloitte, says the slowdown will encourage the Monetary Policy Committee to leave Bank Rate at 0.1%,

“Economic activity grew at a slower pace than expected in October. The contraction in hospitality and accommodation services suggests that demand was already slowing, well before the emergence of the Omicron variant.

“This, in addition to labour and supply shortages, makes for a weak start to the fourth quarter. Today’s data significantly increases the chances of the Bank of England holding off from a rate rise next week.”

TUC: restart furlough now

The TUC has repeated its call for the government to reboot the furlough job protection scheme to safeguard jobs, before new Omicron restrictions slow the recovery.

TUC General Secretary Frances O’Grady said:

The UK’s recovery was already in the slow lane. This week’s new restrictions will slow it further without financial support for the sectors that will be hit.

Ministers should reboot furlough right now to protect jobs and livelihoods.”

After peaking above pre-Covid levels in April 2021, output in the UK construction sector has fallen back in recent months.

The sector is now 2.8% below its pre-pandemic level, due to delays obtaining building materials, and sharply higher prices:

This reflects recent challenges faced by the construction industry from rising input prices and delays to the availability of some construction products (notably steel, concrete, timber and glass) over recent months.

UK GDP: the key charts

These charts from today’s GDP report show how the UK’s recovery has stumbled, after strong growth this spring when lockdown measures were eased:

UK GDP
UK GDP
UK GDP
UK GDP

Fidelity: Steam 'well and truly' taken out of recovery

The UK’s supply chain issues, worker shortages and surging inflation all hurt economic growth in October, says Maike Currie, investment director at Fidelity International.

Currie warns that “the steam has well and truly been taken out of economic recovery”.

The months ahead look challenging, with rising prices and Covid-19 worries hitting consumer spending, and firms facing ‘ongoing headwinds’, she explains.

At 0.5% below its pre-pandemic level, October might be the closest the economy gets to reaching ‘normal levels’ until deep into 2022.

“With the government moving to implement its ‘Plan B’ over concerns on the Omicron variant, there is a creeping sense of déjà vu. Workers are heading back to their kitchen tables and the big festive season that retailers and the hospitality sector had their hopes pinned on - while starting on a high during Black Friday - might not have as much sparkle as hoped.

“As we edge towards 2022, growth forecasts have been downgraded for the year ahead with GDP expected to reach just 4.2%. High levels of inflation and Omicron concerns are likely to limit consumer spending as businesses battle ongoing headwinds. With uncertainty in the air, the path ahead is becoming increasing difficult to navigate.

The Bank of England will be acutely aware that it’s harder to dig an economy out of recession, than to cool rising inflation, which makes an interest rate rise next week increasingly unlikely.”

Reeves: Slowdown is extremely worrying

Labour’s shadow chancellor, Rachel Reeves, says today’s UK GDP figures are “extremely worrying for an already fragile economic recovery”.

Kitty Ussher, chief economist at the Institute of Directors, says the UK economy would have shrunk in October, without the healthcare sector.

Manufacturing stagnated, she points out, as supply chain problems left factories struggling to obtain parts.

“Economic growth would have fallen in October if it were not for the return of face-to-face appointments in the NHS and the ramping up of vaccination activity, both of which had a noticeable positive impact on the service sector.

“Underneath this, manufacturing output was flat, with evidence coming through that while demand remains strong, production is being hampered by difficulties sourcing supplies.

“Meanwhile consumers, who had enjoyed the opening of hospitality venues in the late summer, in October switched back to shopping – and booking holidays.

Sunak: Well placed to keep economy on track

The Chancellor of the Exchequer, Rishi Sunak, has compared October’s slowdown to a bump on the road, saying:

“We’ve always acknowledged there could be bumps on our road to recovery, but the early actions we have taken, our ongoing £400bn economic support package and our vaccine programme mean we are well placed to keep our economy on track.

“We have still been recovering quicker than expected, with more employees on payrolls than ever before and redundancies remaining low.”

However, business in the hospitality sector are warning that the new Plan B restrictions will hit growth and cost jobs, unless the Treasury provides more support fast, including restarting the furlough scheme to help hard-hit sectors.

Capital Economics: UK has slowed to a crawl

The disappointing 0.1% rise in GDP in October suggests that the economy had slowed to a crawl even before the Omicron COVID-19 variant was discovered in late November, says Paul Dales of Capital Economics.

Dales is concerned that output at restaurants and hotels fell by 5.5% in October, even before Omicron worries hit the sector.

The latest variant will probably mean fewer people visit their doctors in December, he adds, although Test and Trace services and vaccine centres may be busier.

He says:

Early evidence suggests growth in November might have been a bit better. Nonetheless, at such low rates of growth, the government’s “Plan B” COVID-19 restrictions could be the difference between the economy growing or contracting in December.

Dales estimates that “Plan B” could reduce GDP by up to 0.5% in December, meaning it’s “touch-and-go” whether the economy will grow or contract this month.

Updated

Here’s Keith Church, head of economic modelling at risk consultancy 4most, on the UK’s slowdown:

Alpesh Paleja, CBI Lead Economist, says October’s slowdown is disappointing:

“Growth disappointed in October, reinforcing concerns about the resilience of the UK’s economic recovery to the Omicron variant and the impact of further restrictions.

We need to create consistency in our approach and build confidence by reducing the oscillation between normal life and restrictions as we learn to live with the virus and its variants.

“Meanwhile, supply pressures remain acute and further rises in inflation are looming. We expect growth to build further momentum ahead, but more action is needed to address longer-term challenges, including “scarring” from COVID and poor productivity.

More snap reaction, from James Smith of Resolution Foundation...

Victoria Scholar of Interactive Investor says:

Last month it looked as though the UK was on track to return to pre-pandemic levels of GDP by the first quarter of 2022.

However, the dark cloud of Omicron now threatens the recovery as the government introduces tighter restrictions, weighing on the pound and Covid-sensitive stocks this week.

Updated

The UK economy was hit by a drop in business at restaurants, shortages of raw materials for builders, and weaker extraction of crude petroleum and natural gas (after North Sea maintenance this summer).

But a jump in visits to GP surgeries, strong demand for second hand cars, and a surge in business at employment agencies as companies struggled to hire workers pushed up growth.

Here’s ONS chief economist Grant Fitzner:

Updated

Introduction: UK growth slows to 0.1% in October

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The UK economy came to a near-standstill in October, raising concerns that the recovery has faltered just as new restrictions are introduced to combat Omicron.

Data just released shows that GDP grew by just 0.1% in October, much weaker than the 0.4% which economists had expected, as firms struggled with supply chain problems and staff shortages.

UK GDP
UK GDP Photograph: ONS

It leaves the economy still 0.5% below its pre-pandemic levels in February 2020.

The Office for National Statistics reports that services output grew by 0.4% in October 2021, partly driven by human health activities due to a rise in face-to-face appointments at GP surgeries in England.

Services output overall has now reached its pre-coronavirus pandemic levels.

But other parts of the economy shrank during the month.

Production output decreased by 0.6% in October, with electricity and gas down by 2.9%, and mining and quarrying down by 5.0%.

And construction contracted, with output down by 1.8% in the month.

More details and reaction to follow....

Also coming up today

Inflation in America is expected to hit a new 30-year high today, putting more pressure on the Federal Reserve to end its stimulus programme faster.

The cost of living is forecast to have surged by around 6.8% per year in November, beating the 6.2% seen in October, and the fastest pace since the early 1980s.

Michael Hewson of CMC Markets says:

With the Federal Reserve due to meet next week, there is some concern that a really hot number today could prompt the FOMC to go accelerate its tapering program more rapidly, from the current $10bn of US treasuries and $5bn of mortgage-backed securities that it started last month, in an attempt to give themselves more optionality in 2022 when it comes to raising rates.

Currently markets are pricing the prospect of a doubling of the taper next week, and any number that hints at a bigger amount next week could prompt some choppiness.

The fate of one of the UK’s oldest and largest mutual insurers will be decided on Friday as LV= members cast their ballots on a controversial takeover by US private equity firm Bain Capital.

LV=’s leadership insists that the £530m deal is in its members’ best interests and will secure much-need capital. But, members, campaigners and politicians fear transferring power to an American private equity firm will put an emphasis on short-term profits, at the expense of customer service and returns for members.

The agenda

  • 7am GMT: UK GDP report for October
  • 7am GMT: UK trade balance for October
  • 9.30am GMT: Bank of England/Kantar survey of UK inflation attitudes
  • 1.30pm GMT: US inflation report for November
  • 3pm GMT: University of Michigan survey of US consumer confidence

Updated

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