UK inflation climbs to highest level for nearly 30 years

Consumer prices in the UK are rising at their fastest rate in almost three decades, according to the latest figures.

Driven by soaring food costs and energy bills, inflation surged to 5.4% in the 12 months to December, up from 5.1% the month before, the Office for National Statistics (ONS) said.

Food prices were up 4.2% year-on-year — the highest rate since September 2013.

It comes a day after separate ONS figures showed that average pay rises are failing to keep up with the rise in the cost of living.

“Food prices again grew strongly, while increases in furniture and clothing also pushed up annual inflation,” said ONS chief economist Grant Fitzner.

“These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year.”

The last time inflation was higher was in March 1992, when it was 7.1%.

Analysts have warned it could soon reach that level again. With a 50% higher energy price cap set to take effect in April, gas and electricity costs are likely to increase further — putting further upward pressure on inflation.

UK workers’ pay failing to keep up with cost of living

Employees in the UK are seeing their pay rises wiped out by surging inflation, official figures show.

Growth in average total pay (including bonuses) in the three months to November 2021 was 4.2% and growth in regular pay (excluding bonuses) was 3.8%, the Office for National Statistics said. In real terms (adjusted for inflation), total and regular pay showed minimal growth in September to November 2021, at 0.4% for total pay and 0.0% for regular pay.

In November alone, average weekly earnings adjusted for inflation fell for the first time since July 2020, at negative 0.9% for total pay and negative 1.0% for regular pay.

A separate analysis of three-month changes in pay by the Resolution Foundation suggests that real wages actually started falling as far back as June 2021.

And the think tank warned that the the current period of shrinking pay packets “is likely to get worse” before starting to ease in the second half of 2022.

“Despite widespread talk of returning wage spirals, Britain is instead experiencing the return of shrinking pay packets,” said Hannah Slaughter, senior economist at the Resolution Foundation. “The latest period of falling real wages — the third in a decade — is likely to have started as a far back as last summer, and is likely to continue beyond next summer too.

“But while falling wages will add to the pressure on Britain’s cost of living crunch, the jobs market is in good health, with unemployment falling and employment rising late last year — a remarkable success given the damage inflicted by the pandemic.

“The big picture is that Britain will emerge from the pandemic with pay packets shrinking, and over half a million fewer people in the labour market. Both of these challenges will need to be addressed in 2022.”

Unilever defends £50bn approach for GSK’s consumer healthcare arm

Consumer goods group Unilever has indicated that it will continue to pursue a mega-merger with the health products business of GlaxoSmithKline (GSK).

GSK has already said that it is looking to divest the healthcare operation. However, it has so far rejected three offers from Unilever, including the latest £50bn approach.

The business — in which Pfizer holds a 32% stake — includes brands such as Aquafresh and Sensodyne toothpaste, Panadol pain relief and Centrum vitamins.

GSK said at the weekend that the offers from Unilever “fundamentally undervalued” the business and its prospects.

Unilever is looking to expand further into the health, beauty and hygiene sectors, and said on Monday that a deal would be a “strong strategic fit”.

Highlighting potential synergies in the oral care and vitamin supplements business, Unilever added: “The acquisition would create scale and a growth platform for the combined portfolio in the US, China and India, with further opportunities in other emerging markets.”

GSK’s share price rose by 5% on Monday morning, while Unilever’s shares were down 6%.

Rising living costs squeeze UK households’ financial wellbeing

UK household finances took a hit in the fourth quarter of 2021, according to a new report.

A quarterly index compiled by Scottish Widows shows the fastest fall in UK household financial wellbeing since the start of the pandemic. Overall perceptions of financial wellbeing fell from 44.0 in Q3 to 40.1 in the final quarter of the year — the biggest deterioration in the index since the second quarter of 2020, with the 50-mark separating improvement from worsening in the household’s financial situation.

It came as surging living costs led to the steepest fall in cash availability for almost eight years and consumers worried about the impact of inflation.

Many households also experienced a reduction in income from employment and there were concerns about job security, particularly in December as a result of the Omicron variant.

And with rising living costs hitting household budgets, pressure intensified on people’s saving and disposable income. Only the highest earners added to their short-term saving pots during Q4, with lower earners struggling to put money aside, Scottish Widows said.

“One in five are not currently saving any money, slightly up from the same time last year, and almost a quarter would now consider withdrawing from their pension early if it was possible,” said Emma Watkins, managing director of Retirement and Longstanding at Scottish Widows.

“With the emergence of the Omicron variant adding to uncertainty, households will undoubtedly be hoping that the impact to their finances is modest as we enter 2022.”

Rolls-Royce sees record sales as consumers spend lockdown savings on luxuries

Luxury car maker Rolls-Royce has reported its best ever sales as consumers across the globe spend money accumulated during the pandemic on luxury goods.

In 2021 the manufacturer delivered 5,586 cars to customers around the world, up 49% on the same period in 2020.

This figure included all-time record sales in most markets, including Greater China, the Americas and Asia-Pacific, and a strong performance for all models.

Sales totals for each car have not been released, but Rolls-Royce said that the growth was driven “principally” by the Ghost saloon, its newest model, and boosted by the launch of the Ghost Black Badge in October. It also reported steady sales of the larger Phantom and SUV model Cullinan.

The company’s order books are full well into the third quarter of 2022 and bespoke commissions are also at record levels.

Chief executive Torsten Müller-Ötvös, quoted by the Guardian, said that Rolls-Royce had benefited from Covid-19 restrictions which meant that wealthy consumers had fewer opportunities to spend their money.

“It is very much due to Covid that the entire luxury business is booming worldwide,” he said. “People couldn’t travel a lot, they couldn’t invest a lot into luxury services … and there is quite a lot of money accumulated that is spent on luxury goods.”

Grocery shoppers made the most of Christmas festivities

UK shoppers splurged on Christmas treats this year, with a rise in spending on goods including mince pies, chocolates and sparkling wine.

The latest figures from data company Kantar show that grocery sales reached £11.7bn in December, down just 0.2% on record sales in 2020 when several areas faced restrictions.

Although there weren’t formal rules in place across the UK this year, the data suggests that many people opted to stock up and celebrate at home again, rather than in a pub or restaurant, due to the Omicron variant of Covid-19.

“People seized the chance to enjoy Christmas with friends and family after last year’s muted festivities,” said Fraser McKevitt, head of retail and consumer insight at Kantar.

While spending on many traditional Christmas dinner items was broadly similar compared with last year, there was ample evidence of people treating themselves and guests, Kantar said. Sales of mince pies reached £62m in December, a jump of 7% on 2020, while sales of Christmas chocolates were up 21% to £61m.

Sprout sales declined by 3%, but the traditional vegetable hasn’t fallen out of favour just yet as almost half of all households in Britain served them up in December.

There were signs of new dietary trends in the data, with plant-based foods proving especially popular even before the start of Veganuary. Chilled vegetarian ranges increased sales by 6% while their frozen equivalents were up 4%.

Shoppers also spent a record amount on premium own-brand products, with £627m spent on supermarkets’ own upmarket lines in December, an increase of 6.8% from 2020. Luxury own-brand sparkling and still wine sales grew 22% and 18% respectively, while crisps surged by 31%.

Alongside Christmas indulgence, higher prices pushed up shopping budgets. Grocery price inflation reached 3.5% in December, adding nearly £15 to shoppers’ average monthly grocery bill.

The busiest shopping day was 23 December, with largest number of in-store visits since March 2020.

UK economic growth in Q3 slower than first thought

The UK’s economic recovery slowed down by more than previously estimated between July and September, according to revised figures.

The data from the Office for National Statistics (ONS) pre-dates the emergence of the Omicron variant of Covid-19, which is expected to result in a further setback.

Gross domestic product (GDP) is now believed to have risen by 1.1% in the third quarter, down from an earlier estimate of 1.3%.

However, the data revisions also show that the economy is closer to pre-pandemic levels than first estimated.

Last year’s economic slump has now been estimated at 9.4% — still the biggest decline in 99 years but smaller than the previously estimated 9.7%.

This means that by the end of September the economy was 1.5% smaller than at the end of 2019, rather than 2.1%.

Elsewhere, the report showed that with the economy opening back up in the third quarter, households increased spending on restaurants & hotels, transport and recreation & culture. Despite this increase, household saving was still up on pre-pandemic levels.

The third quarter figures also show a decrease of 8.8% in goods exports and a 2.5% contraction in business investment.

£1bn support fund for businesses most impacted by Omicron

Businesses in the hospitality and leisure sectors in England will be eligible for one-off cash grants of up to £6,000 per premises, Chancellor Rishi Sunak has announced.

At the same time, another £30m in funding will available through the Culture Recovery Fund to support organisations such as theatres, museums and orchestras through the winter.

It comes after the rapid spread of the Omicron variant of Covid-19 led to a significant drop in trade and bookings.

More than £100m in discretionary funding will also be made available for local authorities to support other businesses.

As part of the latest measures, the devolved administrations will receive around £150m to provide additional support to businesses in Scotland, Wales and Northern Ireland as they see fit.

And the UK government will cover the cost of Statutory Sick Pay for Covid-related absences for small and medium-sized employers across the UK.

Hospitality businesses have seen revenue fall by as much as 60% during a key period for the sector.

Trade association UKHospitality welcomed the new grants and the release of a £1.5bn package to support the supply chain.

“This is a generous package building on existing hospitality support measures to provide an immediate emergency cash injection for those businesses who, through no fault of their own, have seen their most valuable trading period annihilated,” said UKHospitality’s chief executive, Kate Nicholls.

“It will help to secure jobs and business viability in the short term, particularly among small businesses in the sector, and we particularly welcome the boost to funds for the supply chain and event and business catering companies so badly affected by the reintroduction of work from home guidelines.”

UK tech sector sees record investment

The UK technology sector attracted a record £29.4bn in investment this year, according to new figures from the UK government’s Digital Economy Council.

This is more than double last year’s investment of £11.5bn, with 29 unicorns — tech firms worth more than $1bn (£750m) — created this year including e-commerce company Depop, car selling platform Motorway, insurance provider Marshmallow and challenger bank Starling Bank.

The UK’s total unicorn figure now stands at 115, compared with 31 in France and 56 in Germany.

Cambridge was named as the country’s leading regional tech city, reflecting factors including its high levels of venture capital funding and number of unicorns. It was followed by Manchester, Oxford and Edinburgh, with Cardiff and Belfast also in the top 10.

“It’s taken 20 years for UK tech to get to the starting line and things start to get interesting in the next 20 years,” commented Saul Klein, partner and co-founder at venture capital company LocalGlobe.

“We have all the ingredients to become the leading tech ecosystem in the world, with record levels of R&D, financing and established tech hubs across the country from New Palo Alto in Kings Cross, to Cambridge, Edinburgh and Manchester.

“But the key differentiator for investors in future will be a willingness to take an ethical approach to building businesses. We can be world-class in this and over the long term this will set our companies apart from those built in the US and China.”

Tui sees slowdown in winter bookings over Omicron fears

Holiday bookings for the next few months are slowing down after the emergence of the latest Covid-19 variant, says holiday group Tui.

The company currently has 4.1 million bookings for its winter 2021/22 and summer 2022 seasons, with 1.4 million bookings made since 3 October. However, media coverage of rising incidence rates and the emergence of the Omicron variant has weakened the recent positive momentum, particularly for the winter season.

Over the past week, a quarter of Tui holidays booked for December were postponed to a later date, the company told the BBC.

Capacity over the winter is expected to be around 60-80% of pre-pandemic levels but next summer is looking strong, with customers booking higher-value getaways.

Average selling prices for the coming year are 15% ahead of pre-pandemic levels and for the summer they are 23% higher.

Tui said: “For winter and the coming year, it is clear that holidaymakers are choosing higher-value offers, more package tours and are also prepared to plan a larger budget for their holidays.”

In its financial year to 30 September 2021 the holiday firm reported a loss before tax of €2.46bn (£2.11bn), down from the loss of €3.2bn (£2.74bn) in the prior year.