Policymakers in the UK withhold support as Omicron fears deepen
Despite the uncertainty caused by the surge in Omicron cases, the BoE raised interest rates to 0.25% this week. This marks a clear change of tack, moving away from a risk management approach. Concerns about a tight labour market and the need to reinforce inflation-fighting credibility are now at the forefront. Early evidence suggests marked damage to activity in social consumption sectors, as rising case numbers hinder mobility and consumers shy away from contact with others. So far the government has been reluctant to offer financial support to these sectors, but that stance might quickly prove unsustainable.
What you will learn:
- The UK government is resisting reimposing restrictions beyond
those implemented last week as part of the move to Plan B. But even if it’s proven Omicron causes less serious illness, the sheer number of cases could still generate significant pressures on the NHS and force the government to act.
- Early data suggests a hit to activity in December. The flash survey reported that the composite PMI sank to a 10-month low due to a marked slowdown in services.
- The MPC’s justification for hiking rates centred on the tightness of the labour market, with another strong release this week deemed enough to fulfil the criteria it had previously set for tightening policy.
Big shifts are underway in Russia-China trade
Data for Q3 on the volume of China's imports of crude from Russia show a drop against the June level. Rather than an indication that China's demand has peaked, this may be a sign that China is preparing for the Russian oil price cap recently agreed by G7 by shifting some of its purchases to the grey market.Find Out More
Levelling up is unlikely under the Liz Truss government
The government's levelling up ambition has probably been made more, not less, difficult by the new "Plan for Growth". Policies of lower taxes, less regulation, and a smaller state are unlikely to have much beneficial impact on long-term growth at the national level, let alone in those regions with long track records of underperformance.Find Out More