Britain’s inflation rate is expected to hit a 30-year high on Wednesday, when the government releases its December data, as households across the country face a cost-of-living crisis.
Economists expect inflation to hit 5.2 per cent in the final month of 2021 – the joint highest rate since the early 1990s and a 0.1 per cent increase on the 5.1 per cent recorded in November, which itself was a decade high.
While most pundits see Consumer Price Inflation surging to a peak of 6 per cent by April, Paul Dales, chief UK economist at Capital Economics, expects the figure to edge closer to the 7 per cent mark with a high of 6.9 per cent and ramifications for economic growth and interest rates.
In his mind, the higher than expected inflation surge will lead to slower gross domestic growth and in turn further rate rises than other analysts are anticipating – hitting 1.25 per cent by the end of the year – a significant uplift on the current level of 0.25 per cent.
“The risks are that the labour market remains stronger for longer, CPI inflation stays above the 2 per cent target well into next year and the Bank of England raises interest rates further in 2023,” Mr Dales said.
What will cause UK inflation to soar in April?
While higher energy prices pushed up inflation in the last few months of the year – a reflection of surging global energy costs – in turn causing household bills and transport costs to escalate, the picture in November was slightly different.
November’s inflation rate of 5.1 per cent saw increases in food inflation to 4 per cent from 2.5 per cent and hotels/restaurants inflation to 6.2 per cent from 5.2 per cent. Ruth Gregory, senior UK economist at Capital Economics, said they were offset by a fall in fuel and clothing and footwear inflation.
This left overall CPI inflation at 5.1 per cent, while core inflation, which excludes food, energy, alcohol and tobacco, may have nudged down to 3.9 per cent from 4 per cent.
While Ms Gregory expects inflation “to tread water for a couple of months”, the real trigger point will be higher energy prices from April 1, when Ofgem, the energy regulator, will increase its default energy tariff price cap.
What does this mean for households?
Households are set to be £1,200 a year worse off as a result, with an uplift of about £500 to energy bills that have already risen significantly amid soaring wholesale gas prices in recent months.
“We think a rise in the region of 50 per cent is on the cards. That would add 2.1 percentage points to overall inflation and push it up to 6.9 per cent,” Ms Gregory said.
Failing energy firms could cause a further £100 to be added to energy bills, while a 1.25 per cent rise in National Insurance contributions will cost the average household £600 a year.
In the short-term, household budgets will be increasingly squeezed, as higher utility bills, and taxes hit home, with consumer spending set to dip, at least in the first quarter.
Beyond the first three months of the year, however, Mr Dales expects households to save a smaller share of their incomes as they put more towards everyday living costs.
How is the labour market faring?
While some individuals may look for a higher-paying role to offset their higher living costs, Tuesday’s robust employment figures, which showed unemployment down to 4.1 per cent in the three months to November, highlighted some concerning trends.
Job vacancies may be at an all-time high of 1.247, allowing jobseekers the luxury of being able to shop around for the right role, with pay growth, in nominal terms, well above the 2 to 3 per cent range seen before the pandemic.
But fast-rising inflation is eroding the benefit of higher pay for workers, with pay excluding bonuses flat in inflation-adjusted terms in the three months to November, its weakest performance since July last year.
Ramsey Baghdadi, consumer analyst at analytics company GlobalData, said if wages continue to fall behind the rising cost of living, there will be serious consequences for the foodservice industry.
UK customers are sensitive to changes in price, he said, with a recent survey from GlobalData finding that nearly two in five UK consumers are concerned about their personal finances.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said the financial and labour markets have batted away Omicron “like an annoying fly”, but worries are increasing that inflationary pressures combined with an income squeeze “could come with a painful sting”.
“The effect of the great resignation as workers search for higher pay is filtering through to wage growth, but the rises aren’t keeping pace with inflation. It’s a problem already buzzing in the ears of BoE policymakers, as they decide when and how quickly to raise rates to try and keep a lid on price rises,” Ms Streeter said.
Where will interest rates go from here?
James Lynch, fixed income investment manager at Aegon Asset Management, expects the strong labour market to be a factor in the BoE’s next interest rate decision on February 3.
“The labour market is key for the Bank of England’s medium-term outlook on inflation. If the signs are there for wage rises in the future, then inflation is going to be longer lasting than what is currently being driven by spiking energy prices,” he said.
With inflation still to rise further over the next three months and Covid-19 restrictions being eased, Mr Lynch said the tight labour market would encourage the central bank to raise interest rates to 0.5 per cent next month.
Concern about possible labour shortages and pay pressures over the medium term was certainly a major reason for the BoE’s December rate rise, the first since the start of the pandemic.
Financial markets now see an 85 per cent chance that the central bank will raise rates again on February 3, with Mr Dales expecting an increase to 1.25 per cent by December as the bank’s balance sheet shrinks slowly from February and more rapidly from August.
“The rise in inflation will prevent public borrowing from falling as fast in 2022/23 as we previously thought,” he said.
With the BoE’s tougher stance towards inflation, Mr Dales said, in the long term, “interest rates will be higher sooner and inflation will be lower”.
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At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
Habrish 'rebels': Tribal-backed forces feuding with STC over control of oil in government territory
The specs: 2018 Maserati Levante S
Price, base / as tested: Dh409,000 / Dh467,000
Engine: 3.0-litre V6
Transmission: Eight-speed automatic
Power: 430hp @ 5,750rpm
Torque: 580Nm @ 4,500rpm
Fuel economy, combined: 10.9L / 100km
The specs
Engine: 2.0-litre 4cyl turbo
Power: 261hp at 5,500rpm
Torque: 405Nm at 1,750-3,500rpm
Transmission: 9-speed auto
Fuel consumption: 6.9L/100km
On sale: Now
Price: From Dh117,059
Company Profile
Company name: Yeepeey
Started: Soft launch in November, 2020
Founders: Sagar Chandiramani, Jatin Sharma and Monish Chandiramani
Based: Dubai
Industry: E-grocery
Initial investment: $150,000
Future plan: Raise $1.5m and enter Saudi Arabia next year
It Was Just an Accident
Director: Jafar Panahi
Stars: Vahid Mobasseri, Mariam Afshari, Ebrahim Azizi, Hadis Pakbaten, Majid Panahi, Mohamad Ali Elyasmehr
Rating: 4/5
Director: Laxman Utekar
Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna
Rating: 1/5
How to report a beggar
Abu Dhabi – Call 999 or 8002626 (Aman Service)
Dubai – Call 800243
Sharjah – Call 065632222
Ras Al Khaimah - Call 072053372
Ajman – Call 067401616
Umm Al Quwain – Call 999
Fujairah - Call 092051100 or 092224411
UAE currency: the story behind the money in your pockets
Countries recognising Palestine
France, UK, Canada, Australia, Portugal, Belgium, Malta, Luxembourg, San Marino and Andorra
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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Director: Hasan Hadi
Starring: Baneen Ahmad Nayyef, Waheed Thabet Khreibat, Sajad Mohamad Qasem
Rating: 4/5
The Beach Bum
Director: Harmony Korine
Stars: Matthew McConaughey, Isla Fisher, Snoop Dogg
Two stars
Profile of Tamatem
Date started: March 2013
Founder: Hussam Hammo
Based: Amman, Jordan
Employees: 55
Funding: $6m
Funders: Wamda Capital, Modern Electronics (part of Al Falaisah Group) and North Base Media
Milestones on the road to union
1970
October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar.
December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.
1971
March 1: Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.
July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.
July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.
August 6: The fifth anniversary of Sheikh Zayed becoming Ruler of Abu Dhabi, with official celebrations deferred until later in the year.
August 15: Bahrain becomes independent.
September 3: Qatar becomes independent.
November 23-25: Meeting with Sheikh Zayed and Sheikh Rashid and senior British officials to fix December 2 as date of creation of the UAE.
November 29: At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.
November 30: Despite a power sharing agreement, Tehran takes full control of Abu Musa.
November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties
December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.
December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.
December 9: UAE joins the United Nations.
The specs
Engine: Dual 180kW and 300kW front and rear motors
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Torque: 850Nm
Transmission: Single-speed automatic
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COMPANY PROFILE
Initial investment: Undisclosed
Investment stage: Series A
Investors: Core42
Current number of staff: 47
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PROFILE OF INVYGO
Started: 2018
Founders: Eslam Hussein and Pulkit Ganjoo
Based: Dubai
Sector: Transport
Size: 9 employees
Investment: $1,275,000
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
How Alia's experiment will help humans get to Mars
Alia’s winning experiment examined how genes might change under the stresses caused by being in space, such as cosmic radiation and microgravity.
Her samples were placed in a machine on board the International Space Station. called a miniPCR thermal cycler, which can copy DNA multiple times.
After the samples were examined on return to Earth, scientists were able to successfully detect changes caused by being in space in the way DNA transmits instructions through proteins and other molecules in living organisms.
Although Alia’s samples were taken from nematode worms, the results have much bigger long term applications, especially for human space flight and long term missions, such as to Mars.
It also means that the first DNA experiments using human genomes can now be carried out on the ISS.
