John Leiper, Chief Investment Officer at Titan Asset Management, says the Federal Reserve’s decisions are broadly as expected.

“Expectations running into today’s FOMC meeting were for the Fed to double the pace of taper, an end to QE in March and three rate hikes next year. It’s not like Jerome Powell to disappoint the market, and that’s pretty much what we got.

The US dollar index is up on the news. Remember, the US cannot go it alone. Co-ordinated global monetary policy easing, in response to the pandemic, requires co-ordinated retrenchment. Without it we could see a massive rally in the US dollar, placing a severe burden on dollar debtors globally, undermining the economic recovery. Interestingly, that’s also what we are seeing in the US Treasury curve which continues to flatten.”

Seema Shah, Chief Strategist at Principal Global Investors, points out that the Fed is also forecasting three rate rises in 2023, on top of three next year:

“The Fed apparently just woke up to the inflationary pressures consuming the US economy. With CPI in touching distance of 7%, it should be of no surprise to see the Fed accelerating tapering and the median forecast showing three interest rate hikes in 2022. Price pressures may well ease next year, but inflation will settle at a level uncomfortably high for the Fed – this is transitory plus.

“The big question for markets now is: can the US economy digest this pace of hikes without ending up with a stomach ache? After the 20 months we’ve had, perhaps six hikes over a two-year period looks overwhelming. But compared to previous hiking cycles - most pertinently 2004 to 2006 when the Fed made 17 consecutive hikes - we are tentatively confident that the US economy can handle it. Not only that, but US inflation needs it.”

Here’s Richard Flynn, UK Managing Director at Charles Schwab:

“As expected, the Fed made no formal interest rate adjustment. Instead, the Fed announced it will accelerate the taper of balance sheet purchases. In other words, the Fed is withdrawing its stimulus programme at a faster rate than planned. The shift is a response to the United States’ persistent rate of inflation. Last month’s CPI Index recorded the largest annual gain in inflation since 1982. The Fed will hope that accelerated tapering puts downward pressure on demand, encouraging supply to catch up and cooling price rises.

Markets know that the Fed’s accelerated tapering does not amount to tightening monetary policy. As long as the Fed is buying bonds, it’s still running a loose monetary policy

Some late news: The US Federal Reserve has decided to end its pandemic stimulus programme more quickly, as it reacts to the surge in inflation.

America’s central bank will taper its asset-purchase scheme by $30bn per month from January, having previously trimmed $15bn off the programme in November and December.

That would wrap up the bond purchases, which had run at $120bn/month, by next March.

Federal Reserve officials also now expect to raise interest rates by 25 basis points three times next year, according to its new ‘dot plots’ where policymakers predict borrowing costs.

That’s a hawkish change on three months ago, with the Fed signalling that its inflation goals have been met (CPI hit a 39-year high of 6.8% last month).

The FOMC committee say:

With inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.

In new economic projections released following the end of a two-day policy meeting, Fed officials also forecast that inflation would run at 2.6% next year, compared to the 2.2% projected as of September, and the unemployment rate would fall to 3.5%.

The Fed also warned that the path of the economy continues to depend on the course of Covid-19.

Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain, including from new variants of the virus.

Here are all today’s stories, starting with inflation:

The pandemic:

The latest Brexit trade developments:

The energy crisis:

And also:

Asking workers to stomach a below-inflation pay rise is never popular. Asking them to do so when their day job is forecasting the cost of living is really asking for trouble.

And so it has proved at the National Institute for Economic and Social Research. A strike ballot opened on Wednesday for members of the Unite union after the NIESR’s management offered a basic pay deal worth 2%. It comes after wages were frozen last year.

With the latest official data showing the cost of living was up by 5.1% in year to November, the union is confident its members will vote to shut down their computers and stop working on their spreadsheets....

The UK’s blue-chip stock index has closed lower tonight, as anxiety over omicron and inflation weigh on the markets.

The FTSE 100 lost 48 points, or 0.66%, to 7170 points, its lowest level in a week.

Chilian copper producer Antofagasta fell 5.3%, followed by a string of UK-focused companies including airline group IAG (-5.1%), retailer Next (-4%), and hotel chain Whitbread (-3.6%).

On the smaller FTSE 250 index, Cineworld crashed by 39% after losing that court battle with rival Cineplex over their aborted takeover, while electricals retailer Currys lost 9% after reporting a sales slowdown.

Restaurant Group shed 6.5%, cruise operator Carnival lost 5.8% and budget airline Wizz Air fell 5%.

Covid fears were rife, as UK cases hit record levels and the head of the UK Health Security Agency has called the Omicron variant “probably the most significant threat” since the start of the pandemic amid warnings over a coming surge in hospitalisations.

Danni Hewson, AJ Bell financial analyst, says nerves over tomorrow’s Bank of England interest rate decision are also high:

“What do you get when you add Covid nerves to hot, hot, hot inflation numbers? It’s a question that’s troubling central banks, investors and consumers alike. Last month’s unexpected decision by the Bank of England to stick with the status quo unsettled London markets, investors thought they had Andrew Bailey’s measure, now they’re wondering if their view of the current situation is accurate. A change tomorrow would be unexpected, and the one thing markets hate more than a rate rise is one they’ve not priced in.

“The FTSE’s had a pretty torrid day, consumer facing stocks battered by concern about the rising cost of living and concern that Plan B might give way to C or even D before the year is out.

Things are moving fast for the British economy, our economics correspondent Richard Partington writes:

Inflation has soared to the highest level in a decade, breaching 5% months earlier than expected. The headline figure masks much steeper rises for everyday items – the cost of apples and pears is up 25% in a year.

Meanwhile, consumer confidence is evaporating as the coronavirus Omicron variant spreads through the population with unprecedented pace.

Both will be front of mind for the Bank of England on Thursday as it weighs up whether to raise interest rates in the week before Christmas. With the economy appearing to blow hot and cold, and the outlook shifting by the day, it could be the toughest call in the rate-setting monetary policy committee’s 24-year history.

Official figures for November show the consumer price index measure of inflation jumped to 5.2%, surpassing City expectations to hit the highest rate since September 2011. For most people, wages are not rising anywhere near as fast, which means a rapidly worsening cost of living crisis across the country...

But with omicron cases rising sharply, and the UK’s covid-19 cases hitting a record 78,610 today, can the Bank raise interest rates tomorrow? More here...

In the City, shares in Cineworld have plunged by over a third after the company was ordered to pay £750m in damages following the aborted takeover of rival Cineplex.

Cineworld, the world’s second-biggest cinema chain, lost a court case against Canada’s Cineplex, which had accused the UK group of breaching its obligations by pulling out of a deal agreed in late 2019.

The Ontario Superior Court of Justice ruled in Cineplex’s favour, dismissed a counter-claim from Cineworld, and said Cineworld should pay Cineplex C$1.23bn plus C$5.5m of lost transaction costs.

Cineworld disagrees with the judgment and says it will appeal the decision. The ruling is a heavy blow on top of the sales lost in the pandemic already, with the omicron variant also threatening trading.

Its share have slumped by nearly 38% to 28.8p, the lowest in over a year.

AJ Bell investment director Russ Mould says Cineworld’s hunger for growth has come back to haunt it, and warns the company is losing credibility with investors, fast.

“Pre-pandemic the company had expanded through acquisitions including taking on considerable debt to plant a flag in the US via the purchase of Regal Entertainment.

“Despite having borrowings up to its eyeballs, Cineworld then chased more growth by striking a deal in December 2019 to buy Canada’s Cineplex. That was a bold move, and many people suggested its eyes were bigger than its belly.

“The timing couldn’t have been any worse. The pandemic struck and it looked like Cineworld’s only way to survive this crisis was to bail out of the Cineplex deal, given that it had massive debt repayments and suddenly no income.

“Cineworld argued that Cineplex had breached certain parts of the agreement and so it pulled out of the deal. This resulted in a legal battle which has now ended in favour of the Canadian party.

“It means Cineworld is now facing a C$1.2 billion bill for damages. This ruling threatens to put significant financial pressure on the business if its appeal is unsuccessful.

After surging to 5.1% last month, UK inflation is now heading towards 6%, says Deutsche Bank’s senior economist Sanjay Raja.

He says inflation surprised to the upside today, including a ‘staggering’ rise in the retail prices index to 7.1%, with core CPI inflation rising to 4%.

These are the highest prints we’ve seen in a decade. And to be sure, for core CPI and RPI, these are the highest prints we’ve seen since the MPC was given its independence in 1997.

Raja has now recalibrated his models, and his inflation projections have ticked up further.

We now see headline CPI peaking above 6% in April-22, easily marking the highest annual rate of inflation since the Bank of England’s independence. And we see headline RPI pushing to 7.7% y-o-y.

That would be three times the Bank of England’s target of 2%, and mean that UK real wages were falling again [as wage growth has slowed to around 4%].

The UK energy price cap likely to rise sharply next April when Ofgem next adjusts it.

And inflation risks – at least for the very near term – could remain tilted further to the upside, Raja adds:

Changes to inflation weights will only serve to amplify the rise in core goods, energy, and food inflation, with the 2022 consumption basket likely to be skewed more towards non-services. The good news, if any, is that as pressures rotate away from goods to services, we should see a more amplified drop in headline inflation – something we still envisage will come late next year.

In the US, retail sales have risen by less than forecast, suggesting that consumer demand may be cooling.

Spending at retailers and food services outlets only rose by 0.3% month-on-month in November, much weaker than the 0.8% gain expected thanks to Black Friday and early Christmas spending.

Spending at gasoline stations jumped 1.7% during the month, as higher prices hit US motorists (as in the UK). But electronics and appliance stores saw a 4.6% drop, while department store sales tumbled 5.4%.

UK inflation jumped to 5.1% in November as the price of petrol reached a record high and a computer chip shortage continued to push up the cost of cars.

The Office for National Statistics (ONS) said the increase, which exceeded City forecasts of a rise to 4.8%, took the consumer prices annual rate to its highest level since September 2011, when it stood at 5.2%.

Analysts said the increase in inflation from 4.2% in October is expected to put further pressure on the Bank of England to raise interest rates when it meets on Thursday, although the spread of the Omicron variant may deter policymakers from taking such action until the new year.

Last month, Bank officials were predicting that inflation would rise more gradually and exceed 5% by next April, when a price cap on gas bills is expected to be lifted by the energy regulator Ofgem.

Unions and anti-poverty campaigners said the jump in prices would hit household living standards without further action from the Treasury.

Labour market figures on Tuesday showed wage increases moderated in October to below 4%, indicating that despite rising employment and a widespread vacancies, workers are likely to see a fall in disposable incomes in the run-up to Christmas.

More here:

Digging into today’s inflation data, its clear that prices have risen across the board in the last 12 month, although there are some exceptions.

Food prices have risen 2.4% per year, including a 5.1% rise in ‘beef and veal’, a 6.9% leap in ‘lamb and goat’, a 5.7% rise in whole milk, and a 8.9% jump in butter prices. Fruit rose 4.5%, while yoghurt rose 6.7%.

Crisps are up 7.3%, while ice-cream and edible ice prices have risen 9.1%.

But flour and other cereals fell 10.3%, pizza and quiche prices are down 7.6% on a year ago, and pasta and couscous was 5.2% lower -- all staple items during last November’s lockdown.

Among alcohol products, wine rose 3.3%, including fortified wines which jumped 8.3%, while beer rose 2%.

Tobacco prices were up 6.8%, following tax increases.

Clothing prices jumped 3.8%, with infant and children’s garments costing 4.8% more than a year ago.

Households have also faced a 13.7% increase in the cost of materials for repairs, and a 23.2% surge in energy costs after the price cap was lifted.

Household furniture has jumped by 12.2%, with carpets and rugs costing 6.5% more.

Household appliances have also become pricier, with refrigerators, freezers and fridge-freezer prices jumping 10.3%, washing machines, tumbledriers and dishwashers up 8.3%, and cookers costing 4.5% more.

In transport, used-car prices rocketed by 27.1% (details here), new cars rose 3.6%, and bicycles are 15% more expensive than a year ago.

Motorists also saw inflation at the pumps, with diesel up 27.5% and petrol costing 29.5% more, as prices hit record levels.

Railway journeys cost 4.8% more, while air travel was 14.1% more expensive, following the easing of travel restrictions.

Within recreation, games, toys and hobby prices rose by 3.7%, while camping equipment costs 14.5% more than a year ago, and garden products rose 12.7%.

Pets are 3% cheaper, but products for our furry and feathered friends cost 4% more.

Going out costs more too -- with cinemas, theatres, concert visits costing 13.6% more, while attending recreational and sporting events is 8.4% more expensive.

Book prices have risen by 5.5% (with fiction costing 12.7% more).

Within catering, restaurants and cafes will set you back 4.2% more than in November 2020, while canteens are 9.4% pricier (demand will have been lower in last year’s lockdown).

Accommodation services costs have risen by 8.3%, as hotels, hostels and campsites have reopened after the lockdown earlier this year. It was led by a 17.5% jump in prices at holiday centres, camping sites and youth hostels.

Hairdressing prices for women have risen 3.9%, although only by 3.3% for men and children.

Jewellery prices have risen 2.7%, while repairing jewellery, clocks and watches will cost 7.5% more.

But insurance bills have dropped by 1.9%, led by a 6.7% fall in house contents insurance (although health insurance is up 6.2%). And the charges set by banks and post offices are down 2.4% over the last year.

Second-hand car prices increased by 3.1% in November, and have jumped by over 27% in the last year.

Indeed, prices of used cars have surged by 31.3% since April, when last winter’s lockdown began to ease, as this chart shows:

Rising demand from people looking to avoid public transport in the pandemic, supply chain problems hitting new car production, and a shortage of second-hand cars are all factors.

The ONS explains:

These latest movements come amidst reports of increased demand as dealers opened following the most recent national lockdown, together with a global semiconductor shortage affecting the production of new cars and resulting in consumers turning to the used car market.

Additionally, there are reportedly concerns in the trade about the supply of second-hand cars because of a variety of factors. These include fewer one-year-old cars coming to the market now because of a fall in new car registrations last year, and the extensions of lease contracts and fewer part exchanges caused again by delays in new-car supply.

Here’s a breakdown of how prices have risen, driving the UK’s CPI inflation rate to a decade high of 5.1%:

• Food and non-alcoholic beverages: +2.5%
• Alcoholic beverages and tobacco: +4.8%
• Clothing and footwear: +3.5%
• Housing, water, electricity, gas and other fuels: +7.0%
• Furniture, household equipment and maintenance: +6.1%
• Health: +1.4%
• Transport: +12.5%
• Communication: +1.2%
• Recreation and culture: +3.3%
• Education: +4.5%
• Restaurants and hotels: +5.2%
• Miscellaneous goods and services: +1.5%

The Unite union says it will continue to push for pay rises to at least match the Retail Prices Index measure of inflation.

RPI, which includes housing costs, jumped to 7.1% in November, ahead of the consumer prices index which rose to the ten-year high of 5.1%.

Unite’s general secretary Sharon Graham says the union will continue to base claims on the RPI figure rather than CPI because it better reflects the actual price rise experienced by Unite members.

“Today’s figures mean our members must fight for wage rises above the current rate of inflation, as measured by the RPI. Otherwise, they will be facing a calamitous drop in their standard of living.

Current estimates suggest that costs for the typical UK family will jump by £1,700 in 2022. Workers did not create this cost-of-living crisis so why should they pay for it?”

[RPI is no longer an official national statistic, and is being replaced by CPIH which includes housing costs. It rose to 4.6% in November]

Inflation is rising much faster than the Bank of England had forecast, just as policymakers prepare to set interest rates tomorrow.

The BoE predicted last month that inflation would peak at 5%, but not until early 2022.

Paul Dales of Capital Economics says November’s jump gives the Bank enough ammunition to raise interest rates tomorrow. But it is more likely, he suggests, to wait until it knows more about the Omicron situation.

Some of the rise in inflation was due to one-off factors. The 5.1% month-on-month rise in fuel prices is unlikely to be repeated now that oil prices have fallen back. And the 4.2% m/m rise in tobacco prices was mainly due to the hike in tobacco duties in October’s Budget. Finally, the rise in clothing inflation from -0.4% in October to +3.5% in November had more to do with the unusual fall in prices last November rather than any unusual strength this November (i.e. it was due to base effects).

Even so, there is some evidence of more persistent price pressures. The rise in food inflation from +1.2% to +2.5% may go further as it probably reflects the previous increase in costs. The increase in second-hand car inflation from +22.8% to +27.1% suggests there’s been no let-up in shortages of cars. And housing rents inflation crept up again, from 1.8% to 1.9%. Core inflation jumped from 3.4% to 4.0%.

Pat McFadden MP, Shadow Chief Secretary to the Treasury, says:

“These figures are a stark illustration of the cost of living crisis facing families this Christmas.

“From the energy price cap going up, soaring food costs and fuel prices hitting another record high - the list of price crunches as inflation continues to rise goes on and on.

“Instead of taking action, the government are looking the other way, blaming ‘global problems’ while they trap us in a high tax, low growth cycle.

“Unlike the Conservatives, Labour wouldn’t be hitting working people with a tax hike, and as heating bills rise, we’d cut VAT on domestic energy bills now for the winter months, to help ease the burden on households.”

With prices rising faster than wages, the UK faces a nationwide living standards squeeze, warns Jack Leslie, senior economist at the Resolution Foundation:

Fuel price inflation is at its highest level on record, going back to 1989, with prices rising 28.5% on a year earlier. And with factory gate inflation still rising, inflationary pressures will continue to build in early 2022, while pay packets continue to shrink.

“It’s too early to say how much affect the Omicron wave will have on inflation – and the extent to which falling demand will be offset by further supply chain disruption, which could push prices in either direction.

“But early 2022 is likely to marked by acute economic pain for some parts of the economy – notably hospitality – alongside a nationwide living standards squeeze.”

UK factories are also facing inflationary pressures, and lifting their own prices sharply higher in response.

The input prices paid by manufacturers surged by 14.3% per year in November, due to pricier raw material prices.

Firms hiked their output prices by 9.1% year-on-year, suggesting consumers will see higher prices in the shops in coming months.

Petroleum products jumped the most (up 85%, following the rise in crude prices this year), but the cost of metals and machinery (+13%), chemicals and pharmaceuticals (+12%), paper (+7.7%) and food (+4.5%) at the factory gate also rose sharply..

A wide range of price increases drove UK inflation to a ten-year high last month, says ONS chief economist, Grant Fitzner:

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

Inflation in the UK has soared to 5.1%, a ten-year high, as the cost of living squeeze gripping the country tightens.

Prices jumped in November at the fastest annual rate since September 2011, the Office for National Statistics reports this morning, up from 4.2% in October.

This surge is higher than economists had forecast, and more than double the UK’s 2% inflation target.

In November alone, the Consumer Prices Index rose by 0.7%, as price pressures hit families in the run-up to Christmas.

Prices surged across the economy, with transport, including motor fuel and second hand cars, food, energy, other housing and household services, clothing and footwear costs all rising.

Inflation is now rising faster than pay, meaning people face falling real wages again.

Basic pay growth slowed to 4.3% per year in August-October, yesterday’s labour market report showed. This is putting pressure on living standards, as the Resolution Foundation points out:

Also coming up today

Inflation is also a hot problem in the US, where consumer prices jumped 6.8% in the year to November, the fastest in almost 40 years. Goods and services producers lifted their prices by nearly 10%, as supply bottlenecks kept pushing up costs.

Faced with this inflation surge, the US central bank is likely to decide to wrap up its bond-buying stimulus programme faster, when policymakers meet today. That would free the Federal Reserve up to raise interest rates faster next year, if needed.

Fears that the Fed will announce a faster ‘taper’ tonight hit stocks on Wall Street yesterday.

The agenda

• 7am GMT: UK inflation report for November
• 9.30am GMT: UK house price index for October
• Noon GMT: US weekly mortgage applications
• 1.30pm GMT: US retail sales for November
• 3.30pm GMT: EIA weekly oil inventory data
• 7pm GMT: US Federal Reserve’s interest rate and tapering decision
• 7.30pm GMT: US Federal Reserve press conference