Despite a weaker end to the year due to the Omicron wave of virus infection, figures on Friday showed the UK economy staged an impressive rebound in 2021 after a pandemic-battered 2020.
For 2021 overall, the Office for National Statistics said gross domestic product increased by 7.5% following a 9.4% fall in 2020.
GDP shrank 0.2% month-on-month in December, beating forecasts after expectations of a 0.6% decline, according to market consensus cited by FXStreet. This still marked a deterioration from growth of 0.7% in November.
Services output fell by 0.5% in December but remained 0.5% above pre-virus levels. The sector was dented by the Omicron variant of Covid-19 in December, which saw a wave of hospitality cancellations as jitters over the virus grew ahead of Christmas and swathes of the population had to self isolate.
‘GDP fell back slightly in December as the Omicron wave hit with retail and hospitality seeing the biggest impacts. However, these were partially offset by increases in the Test and Trace service and vaccination programmes,’ said Darren Morgan, ONS director of Economic Statistics.
‘Despite December’s setback, GDP grew robustly across the fourth quarter as a whole,’ he added.
In the fourth quarter of 2021, GDP grew 1.0% on a sequential basis, at this level 0.4% below pre-pandemic times. However, the ONS noted that December’s monthly GDP figure matched pre-coronavirus levels.
November 2021 remains the first month that GDP recovered to above its pre-coronavirus levels, by 0.3%.
‘Another surge in health spending helped offset Omicron-related weakness in consumer services, to deliver only a modest hit to December’s monthly GDP,’ commented James Smith, developed markets economist at ING.
‘The bigger economic challenge is now the cost of living crunch, which looks set to deliver steadier growth readings later this year.’
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: down 0.5% at 7,633.73
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Hang Seng: down 0.3% at 24,852.00
Nikkei 225: Tokyo market closed for holiday
S&P/ASX 200: closed down 1.0% at 7,217.30
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DJIA: closed down 526.47 points, 1.5%, at 35,241.59
S&P 500: closed down 1.8% at 4,504.08
Nasdaq Composite: closed down 2.1% at 14,185.64
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EUR: down at $1.1387 ($1.1488)
GBP: down at $1.3541 ($1.3629)
USD: up at JP¥116.02 (JP¥115.84)
Gold: down at $1,825.98 per ounce ($1,839.85)
Oil (Brent): down at $91.08 a barrel ($92.78)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Friday’s key economic events still to come
Japan National Foundation Day. Financial markets closed.
1000 EST US University of Michigan survey of consumers
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The top diplomats of the US, Australia, Japan and India opened talks in Melbourne on Friday on deepening their Quad alliance, hoping to blunt China’s expanding power across the Asia-Pacific region. ‘Together we are a vital network of liberal democracies committed to practical cooperation and to ensuring all Indo-Pacific nations, large and small, are able to make their own strategic decisions, free from coercion,’ Australia Foreign Minister Marise Payne said Friday ahead of the meetings. US Secretary of State Antony Blinken said that even though Russia’s threat to Ukraine occupies Washington right now, the longer term challenge is China’s advance, challenging the ‘traditional order.’
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German inflation eased back below 5% at the start of 2022. The German consumer price index rose 4.9% year-on-year in January, softening from December’s annual inflation rate of 5.3%. Energy prices jumped 21% year-on-year, and stripping these out January’s annual inflation rate would have been a more moderate, though still elevated, 3.2%. Month-on-month, prices grew 0.4%, easing from December’s growth of 0.5%. The harmonised index of consumer prices - calculated for EU comparative purposes - grew 5.1% year-on-year and 0.9% month-on-month, both confirming the provisional print.
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Gatwick Airport announced it will reopen its south terminal next month, to meet expected strong demand for air travel from London this summer. The terminal has been dormant since June 15 2020 to reduce costs during the coronavirus pandemic. It will reopen on March 27 as airlines ramp up their schedules. British Airways, part of International Consolidated Airlines Group, has previously announced it will restart its short-haul flights at Gatwick from March 29, with 35 European routes operated by a standalone business.
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Almost one-and-a-half billion fewer pints were sold in British pubs in 2021 than in 2019, according to data from the British Beer & Pub Association. The BBPA said pub beer sales were down 38% in 2021 and there was an on-trade loss of £5.7 billion from beer sales alone – equivalent to 1.4 billion pints. In 2020, trading was down 55% compared to pre-pandemic levels. The BBPA also said there had been a shift in consumer consumption patterns. Between March 2020 and October 2021, beer receipts dropped 11% while receipts for wine and spirits rose 8% and 13%. The BBPA attributes the shift to long periods of restriction pub trading, where beer is the most popular drink, and a rise in at-home drinking.
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BROKER RATING CHANGES
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Credit Suisse cuts Standard Chartered to ’underperform’ (neutral) - price target 500 pence
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Barclays raises Antofagasta to ’overweight’ (underweight) - target 1,600 (1,145) pence
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Jefferies raises Smiths Group to ’buy’ (’hold’) - target 1,865 (1,800) pence
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COMPANIES - FTSE 100
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British American Tobacco approved a £2 billion share buyback programme after making headway with its ’new categories’ division in 2021. Revenue for 2021 slipped 0.4% to £25.68 billion from £25.78 billion the year before, though pretax profit increased 5.7% to £9.16 billion from £8.67 billion. Profit was helped by lower finance costs and depreciation, amortisation & impairment costs. Constant currency adjusted diluted earnings per share growth of 6.6% to 329.0 pence was at the top end of guidance, BAT said. It expects this to grow in the high-single figures in 2022. The Dunhill cigarette maker highlighted that revenue from ’new categories’ - such as vapour and tobacco heating products - grew well ahead of the group as a whole last year, up 42% to £2.05 billion. Non-combustible consumers grew by 4.8 million to 18.3 million and non-combustible products now account for 12% of group revenue, up from 4% in 2017. Further, ’new categories’ has a ‘clear pathway’ to profitability by 2025. BAT lifted its annual dividend by 1.0% to 217.80p and set out plans for a £2 billion share buyback this year.
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COMPANIES - FTSE 250
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Food and beverage ingredients maker Tate & Lyle said trading quarter trading was in line with expectations and its outlook is unchanged. Food & Beverage Solutions revenue grew 19% at constant currency in the three months to December 31, while Sucralose revenue was up 8%. For total continuing operations, revenue grew 18%. ‘We enter 2022 in a strong position. Our new business pipeline in Food & Beverage Solutions is healthy and in both our businesses we have renewed 2022 calendar year customer contracts that offset inflation. In addition, the transaction we announced last year to create two focused businesses is progressing well and we remain on track for completion at the end of March,’ said Chief Executive Nick Hampton.
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Speciality chemicals firm Victrex said it saw a ‘solid’ start to its 2022 financial year. Revenue of £74.6 million in the three months to December 31 was up 9% on a year ago and sales volume of 1,025 tonnes was 16% ahead. ‘Expectations for the full year are unchanged at this early stage. Whilst we anticipate further volume improvement across several end markets, we are mindful of headwinds including currency, raw material costs and increasing energy inflation. Overall, we continue on plan to deliver year-on-year growth in FY 2022,’ said Chief Executive Jakob Sigurdsson. However, he did flag that energy and raw material cost inflation mean that margin improvement may be held back, particularly in the second half.
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The executive chair of Aston Martin said the luxury sports car maker does not need to raise new funds, despite admitting to delays in the production of its Valkyrie hypercars, the Financial Times reported. ‘We don’t need any more money at all,’ Lawrence Stroll said, according to the newspaper. ‘Let me be crystal clear, black and white: we do not need money, and car sales are on track.’ Less positively, Stroll said the Valkyrie, which will be priced at £2.5 million each, are taking longer than expected to build due to their complexity. ‘This is a Formula One car for the road,’ he said according to the FT. ‘We overestimated the amount of cars we could build until we started building.’
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Friday’s shareholder meetings
GCP Infrastructure Investments Ltd - AGM
Good Energy Group PLC - GM requisitioned by Ecotricity
Mineral & Financial Investments Ltd - AGM
Sensyne Health PLC - GM re financing
Victrex PLC - AGM
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