With the cost of living in the UK on the rise and set to continue higher, there’s pressure growing on the government to review their planned National Insurance increases that are due to come into play in April. Although there is pressure from the opposition benches, there’s also some from within, as Jacob Rees-Mogg has apparently said that these increases should be scrapped (though his people will neither confirm nor deny that he did – so he did). Unsurprisingly, his position isn’t that the government should be left with unbalanced books, but that the shortfall from the expected tax revenue should be offset by reduced government spending. The government might actually be able to craft an easy win here, because the tax rise is split into two halves – a temporary National insurance increase for two years which then turns into a permanent health and social care levy. If they scrap the first half but keep the second, they maintain the long-term agenda and if they can reduce Covid related expenditure in the coming months then they might make up some of the £12bn shortfall in tax receipts.

Cost of Living
Staying with cost of living: A record number of firms are planning to raise their prices according to a British Chamber of Commerce survey. Some 58% of respondents to the survey cited supply chain disruptions, materials, and energy costs as reasons for hiking prices. Energy costs are a very sore subject, with European power prices continuing to rise yesterday and the cold spell of winter only just getting started. The government has warned that there’s only so much they can do to help and Kwasi Kwarteng is trying to work out exactly what shape that help might come in – a reduction of VAT on energy bills, removal of the green energy levy and government subsidies are all on the table, but each have their own pros and cons. Sir Ed Davy, leader of the Lib Dems and energy Secretary during the coalition government (remember those halcyon days?!) has called for a windfall tax on oil and gas firms and for that to be redistributed through winter fuel allowance increases and a large expansion of the Warm Homes Discount, which currently offers £140 a year to three million households, to £300 per home and to cover 7.5 million households.

Federal Reserve
The minutes from the Federal Reserve’s last policy meeting were published last night and finally they’ve acknowledged that inflation isn’t going to be transitory and that rate hikes might be faster than previously expected – though the ‘dot plot’ that they gave which shows rates will be at 0.75-1% by the end of the year remains valid. The market wasted little time in reacting to the news, with the stock market falling, treasuries rallying hard and, in a sign that this might start to get on top of inflation, gold prices fell. The stock market move was slightly lopsided though, as the minutes also talked about Omicron and how the Fed think the US recovery is resilient, which led to an outsized slide in tech and ‘stay at home’ stocks.

Stock Market
While it was a poor day for the Nasdaq, airline stocks gathered ground representing further confidence in the industry and the possibility of greater international travel and commerce. For instance, IAG shares gained over 11% on the first working day of 2022 and this trend continued yesterday. This recent momentum has put the financier Ken Griffin in an unenviable position, given that two of his funds hold a short position of 166p against IAG – representing a bet of around £130m! In the last few days EasyJet’s CEO Johan Lundgren, has maintained that the budget airline industry should be back to normal this summer. Moreover, since the news of travel testing being scrapped by the UK government yesterday, bookings have already surged for winter breaks.

Elsewhere: Tensions in Kazakhstan reached a worrying climax yesterday, with protestors seizing Almaty’s International Airport and the Presidential Palace setting alight. Demonstrators have been protesting against the rising cost of liquified petroleum gas, but the growing dissent is also very much about an underlying discontent over the governance of the country, which has effectively been in the hands of one man, Nursultan Nazarbayev, since the breakdown of the USSR (even though he stepped down as president in 2019, he remained the man behind the scenes). Reuters are reporting that current president Tokayev has submitted a request for security assistance as part of the Collective Security Treaty Organization (CSTO) – a military alliance between Russia, Belarus, Armenia, Kazakhstan, Kyrgyzstan, and Tajikistan – and Moscow have confirmed they are sending ‘peacekeeping’ forces. States of emergency are now in place across many Kazak cities, and they’ve attempted a media blackout by cutting internet connections across the country, but that hasn’t stopped reports of dozens of protestors being killed.

The Guardian has more:

Looking Ahead
Today’s data calendar is reasonably heavy, with UK services data and European inflation numbers the highlight from this side of the Pond. The afternoon brings factory orders and jobless claims – yesterday saw a high ADP Employment print in the US, 807k vs 400k expected, and revealed that private-sector job growth in December was the strongest in seven months. However, an important caveat is that the effects of Omicron on the labour market have yet to be seen and the market may pay less attention to today’s numbers, and the all-important Non-Farm Payrolls on Friday, as a result.

Have a great day 



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