Time to recap

The pressure on UK companies is mounting, as insolvencies hit their highest level since the pandemic began in November.

Experts fear more companies will collapse as omicron hits the hospitality sector, costs rise, and supply chain problems continue.

The Bank of England’s chief economist has predicted that interest rates will continue to rise, after yesterday’s surprise hike, if inflation continues to rise as expected.

UK rail passengers face higher ticket prices, with fares to rise 3.8% next year.

Halifax has predicted that the UK’s house price boom will end next year, as household budgets are squeezed by rising inflation.

Retail sales were stronger than expected last month as people rushed to avoid Christmas shortages, but consumer confidence has since been hit by the Omicron variant.

Hundreds of customers have been left in the lurch, just a week before Christmas, after online ethical grocer Farmdrop collapsed.

Germany’s economy has also weakened, with business confidence falling this month and the Bundesbank cutting its growth forecasts.

Turkey’s currency crisis has escalated, with the lira hitting record lows and shares tumbling.

In other news:

Good night, and best wishes for the weekend. GW

In the City, the FTSE 100 index has ended the day 9 points higher, or 0.13%, at 7270.

Travel and retail stocks had a good day, with airline group IAG gaining almost 4% and Primark-owner AB Foods up 3.6%.

European markets finished lower, though, with France’s CAC down 1.1% and Germany’s DAX losing 0.7%.

The online ethical grocer Farmdrop has gone out of business a week before Christmas, leaving hundreds of customers who had ordered turkeys, geese and other festive food scrambling to find alternatives.

The company confirmed it had gone into administration and was “permanently closed”, so it would not be delivering any orders from Friday onwards. Those who have paid will have to approach their bank or card company to ask about getting their money back. Thursday was the final day of deliveries.

Anxious customers who had been expecting a delivery over the next few days asked on social media what would happen now and if they should attempt to source items from elsewhere.

Moira Doyle tweeted: “My delivery today is cancelled. Payment taken yesterday for Xmas order. Refund??” She added that it would be “back to Tesco” for her.

Another tweeted: “Well @farmdrop have gone bust, and with that, my Christmas food delivery ... anyone got any intel on places still selling goose?”

Jane Tidey was one of those tweeting she had just received an email saying her order for Christmas Eve was cancelled. Meanwhile, Rhiannon Litterick tweeted the company to say her order had not arrived and the phone line was closed. “Please help! We’re isolating, so are relying on this order,” she added.

Here’s the full story:

Germany’s economy could be dragged into recession next year by the latest wave of Covid-19 cases.

The fall in business confidence this month to its lowest since February (see earlier post) suggests the economy has come to a standstill at the end of the year, says Carsten Brzeski of ING:

Despite a strong start to the fourth quarter in terms of industrial activity, ongoing supply chain frictions, higher inflation in general, and higher energy and commodity prices in particular, do not bode well for the short-term outlook for the German economy.

The fourth wave of the pandemic could now actually push the economy to the brink of stagnation, or even into a technical recession, even if, admittedly, the adaptability of the economy to lockdowns, supported by government and central bank measures, has clearly increased since March 2020.

In another blow, the Bundesbank (Germany’s central bank) has lowered its growth forecasts today. It cut its German growth forecasts this year from 3.7% to 2.5%, and for next year from 5.2% to 4.2%.

The Bundesbank warned that the German economy will experience a setback in the final quarter of 2021 and the first quarter of 2022 due to the pandemic, adding:

While pandemic-related restrictions and supply bottlenecks for intermediate goods will stall growth in the final quarter of 2021 and the first quarter of 2022, according to the Bundesbank’s projections, private consumption is expected to rise substantially from spring onwards.

The FT says:

Economists are warning that Germany risks sliding into recession this winter after the country’s main indicator of business confidence slumped to its lowest point since February and the central bank slashed its growth forecasts.

Germany’s vast manufacturing sector has been hamstrung for months by delays and shortages of materials caused by supply chain bottlenecks. But now its larger services sector is also being weighed down by new restrictions to contain a surge in coronavirus infections.

The worsening outlook for Europe’s largest economy was underlined by the Bundesbank cutting its growth forecasts for this year and next year, while warning output was likely to fall at the end of this year.

The number of UK company insolvencies has jumped above pre-pandemic levels for the first time, as experts warn that some directors may feel their firms can’t survive in the current climate.

There were 1,674 registered company insolvencies in England and Wales in November, the Insolvency Service reports, up from 1,405 in October.

That’s 88% more than a year ago, and 11% more than in November 2019, before the pandemic.

The Insolvency Service says:

For the first time since the start of the coronavirus (COVID-19) pandemic, the monthly number of registered company insolvencies was higher than pre-pandemic levels.

The number of creditors’ voluntary liquidations (CVLs) - where a company chooses to put itself into liquidation because it cannot pay its debts - doubled year-on-year.

Christina Fitzgerald, vice president of insolvency and restructuring trade body R3, explains:

“The monthly increase in corporate insolvencies has been driven by a rise in Creditor Voluntary Liquidations (CVLs) to the highest number in more than two and a half years.

“The increase in the use of this process suggests that a rising number of company directors are choosing to close their businesses, perhaps because they feel that survival is impossible in the current climate.

“Times are tough for businesses in England and Wales as the pandemic continues to take its toll on the economy and the firms that drive it. Over the last few weeks, businesses have been hit by the triple whammy of increased costs, supply chain issues and rising COVID cases.

“They have also been operating in the face of low consumer confidence and anaemic economic growth in recent months, which, coupled with an increasingly difficult COVID situation, has led to changes in people’s shopping and spending habits and taken its toll on revenue levels.

Other types of company insolvencies, such as compulsory liquidations, remained lower than before the pandemic. And for individuals, 630 bankruptcies were registered, which was 33% lower than November 2020 and 54% lower than November 2019.

John Bell, senior partner at Clarke Bell Insolvency Practitioners in Manchester, fears more firms will collapse as pressure builds from Brexit, the pandemic, inflation, loan repayments, and higher interest rates:

“People have been talking about a ‘tidal wave’ of companies going bust. However, it’s not here yet.

As the latest corporate insolvency statistics for England & Wales show, there were 1,674 registered company insolvencies in November – of which 1,521 were Creditors’ Voluntary Liquidations (CVLs), which is double the number in November 2020.

“Conditions are creating a perfect storm for this ‘tidal wave’ of corporate insolvencies – Brexit, Covid, supply and staffing problems, increasing CCJs, Bounce Back Loans due for repayment and the rising of both inflation and interest rates.

“A lot of companies that were surviving thanks to the low-interest rates and government support have now run out of money and time. And there will be more.

Euro zone inflation surged to its highest rate on record in November, the European Union’s statistics office Eurostat has confirmed.

Consumer price jumped by 4.9% per year, matching the ‘flash’ estimate, rising by 0.4% in November alone.

That’s the highest since the euro was created, and well over the eurozone’s 2% target. Still, it’s not quite as hot as the UK’s inflation rate (5.1%) or the US (6.8%).

Energy prices remained the biggest factor driving up the cost of living, up 27.5% year-on-year, but food, alcohol & tobacco (+2.2%), goods (+2.4%) and services (+2.7%) all rose too.

Yesterday the European Central Bank raised its inflation projections, but cut its 2022 growth outlook as the pandemic and supply chain disruptions slow the euro zone’s economic recovery.

It also took a small step towards rolling back its crisis-era stimulus yesterday, by wrapping up its pandemic bond purchases next March. But it also temporarily doubled the pace of another scheme to cushion the blow, and doesn’t appear close to raising interest rates.

The boom in UK house prices is likely to end next year as household finances become increasingly stretched, according to Halifax.

The mortgage lender said it expected the red-hot increases in average house prices over the last two years – 8% so far this year and 6% in 2020 – to end, with growth forecast to be “broadly flat” in 2022. More here:

Bank of England chief economist Huw Pill has said the central bank would need to raise interest rates further if inflation persists.

Speaking a day after the BoE raised rates for the first time since the start of the Covid-19 pandemic, Pill signalled that Thursday’s increase from 0.1% to 0.25% won’t be the last.

Asked on CNBC television if there would be “a lot more rate hikes to come,” if inflation remained at its current level, Pill replied: “Well I think that’s true.”

He added:

“Underlying, more domestically generated inflation here in the UK, probably centred around wage pressures in a tightening labour market, are going to prove more persistent through time.”

(thanks to Reuters for the quotes)

Banking giant HSBC has been fined £64m by UK regulators for serious weaknesses in its anti-money laundering controls.

The Financial Conduct Authority imposed the penalty for a series of anti-money laundering failings over eight years, from March 2010 to 2018.

These included not properly considering if its systems picked up the risks of suspicious activity such as money laundering or terrorist financing, not testing and updating the systems fully, and not checking the accuracy and completeness of the data being fed into them.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:

“HSBC’s transaction monitoring systems were not effective for a prolonged period despite the issue being highlighted on numerous occasions. These failings are unacceptable and exposed the bank and community to avoidable risks, especially as the remediation took such a long time. HSBC continued their remediation to address these weaknesses after the relevant period.”

HSBC didn’t dispute the FCA’s findings and agreed to settle at the earliest possible opportunity, which meant it qualified for a 30% discount. Otherwise, the FCA would have imposed a financial penalty of £91,352,600.

In the City, the FTSE 100 index has inched a little higher after November’s jump in retail spending cheered the mood.

Burberry (+2%), Next (+1.9%), Primark-owner AB Foods (+1.7%) and DIY chain Kingfisher (+1.6%) are among the risers.

Danni Hewson, AJ Bell financial analyst, says retailers were on track for a merry Christmas, before omicron hit confidence.

“It looked like Santa had got the memo from retailers and was on track to deliver them the kind of Christmas they could only dream about in 2020. With the exception of food, sales were up across the board in November as people shopped early and shopped hard.

“More cash was spent on clothing as people got their glam ready to socialise in the run up to Christmas, sales actually soared above pre pandemic levels for the first time as people grew more and more confident about their festive plans.

“Toys, games, jewellery, and electronics were snapped up and squirreled away, wrapped and ready to find their place under the tree. People had started hunting for those perfect presents early, something demonstrated by the revised numbers for October which actually saw sales hitting 1.1%, up from 0.8%, but the pent-up pennies kept tills ringing right through Black Friday.

Omicron worries are weighing on the market too. Crude oil has dropped, pulling down shares in Royal Dutch Shell (-0.8%) and BP (-0.75%).

This leaves the FTSE 100 up 17 points, or 0.2%, at 7277 points.

People in Britain have grown more pessimistic this month, as the Omicron variant and rising inflation hits confidence.

The GfK Consumer Confidence Index dipped to -15, having risen in November for the first time in four months to -14.

GfK’s survey found that consumers are growing less inclined to make major purchases, showing that the appearance of Omicron at the end of November has hit confidence.

Joe Staton, GfK’s client strategy director, said the lack of Yuletide cheer is evident following the emergence of the latest Omicron variant, with people slightly less confident about their personal finances and the economy over the next 12 months.

“We end 2021 on a depressing note and it looks like it will be a bleak midwinter for UK consumer confidence, possibly with new COVID curbs, and little likelihood of any real uplift in the first months of 2022.”

The UK house price boom is set to end next year, mortgage lender Halifax has predicted.

It predicts that British house prices might only inch up by around 1% in 2022, after surging around 8% during 2021, as pressure builds on household budgets:

In its housing market outlook for 2022, Halifax says:

• The housing market once again proved surprisingly robust during 2021, as government policy support combined with pandemic-driven shifts in housing preferences to keep transaction demand elevated.
  
  
• House prices are expected to maintain their current strong levels, but growth to be much flatter in 2022, at around 1%. However, forecast uncertainty remains very high.
  
  
• The pandemic has further worsened inequality across different demographics, including income and age, increasing the need to improve the availability of good quality, affordable housing.

Russell Galley, managing director at Halifax, says:

“Looking ahead, with the prospect that interest rates may rise further in 2022 to subdue rising inflation, and with government support measures phased out, greater pressure on household budgets suggests house price growth will slow considerably. Nevertheless, interest rates will remain low by historic standards and property prices will continue to be supported by the limited supply of available properties.

“We expect, therefore, that house prices will maintain their current strong levels but that growth will be broadly flat during 2022 – perhaps somewhere in the range of 0% to 2%. Even with that range in mind, there is still a large degree of uncertainty around this forecast, particularly around the extent to which savings accrued during the pandemic continue to boost housing transactions and prices, and how lasting the recent shifts in housing preferences prove to be.

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

There are only 8 days to Christmas, but many people have got their festive shopping in early, it seems.

British retail sales jumped by 1.4% in November, data just released show, thanks to strong trading around Black Friday and in the lead up to Christmas, the Office for National Statistics says.

It puts retail sales 4.7% higher than a year earlier when many shops had to shut in England’s 2020 lockdown.

Spending at clothes stores jumped by 2.9%, lifting clothing volumes above their pre-coronavirus levels for the first time.

Other non-food store, such as computer stores, toy stores and jewellery stores, racked up 2.8% growth.

And the proportion of retail sales online fell to its lowest since the first lockdown in March 2020 - making up 22.6% of spending -- as people returned to high streets and retail malls.

Retail sales also rose in October, after five months of falls. Today’s figures suggest consumer spending had held up well -- before the omicron variant hit the economy at the end of the month.

The ONS’s deputy director for surveys and economic indicators, Heather Bovill, says retail sales picked up last month:

But omicron is now casting a shadow over the economy, of course. The work-from-home guidance introduced last week under plan B measures in England has left city centres depopulated, and hospitality firms warn that trading had plunged.

And yesterday’s surprise interest rate from the Bank of England, and the possibility of more next year, could also weigh on spending.

The agenda

• 7am GMT: Retail sales across Great Britain for November
• 7am GMT: New European Union car registrations for November
• 9am GMT: German Ifo business climate survey
• 10.30am GMT: Bank of Russia’s interest rate decision
• Noon GMT: Bank of England quarterly bulletin