UK GDP figures came for Q4 came in at 1% this morning despite the economy contracting 0.2% in December with analysts citing Omicron as the primary reason for this slow down. Today’s data indicates that over the course of 2021 as the economy rebounded from the pandemic GDP grew 7.5% – its greatest level since 1941. The effect on Sterling has been somewhat minimal given that while December’s figures were above expectation (as the market predicted a drop of 0.5%), Q4’s print was slightly below expectations of 1.1%).

Growth in Q4 was aided by courier services and employment agencies seeing higher demand as well as spending on health. Nevertheless, as Omicron spread growth in the hospitality and retail sectors were hit particularly hard, as was the general workforce’s productivity with millions under isolation.

Moving forward, as taxes rise, and disposable incomes decrease the subsequent reduction in consumer spending will likely dampen growth moving forward. Additionally, with the ongoing rise in energy costs, supply chain issues and concerns over potential delays caused by the forthcoming Entry and Exit customs system, growth forecasts for 2022 have been reduced by the IMF. For example, the IMF’s recently updated report predicted the UK’s economy to grow at 4.7%, down from previous estimates of 5%.  Moreover, given that a total of 3.4 million people in the UK were estimated to be infected with Covid-19 in the seven days up to to 15th January, it is likely that the effects of omicron will still permeate into growth figures when January’s data is released next month.

In the interest of international context, Germany’s economy grew just 2.8% in 2021 and in fact contracted 0.7% in Q4 meaning that the economy remains some 1.5% below pre-pandemic levels. This may be contrasted with the US economy which is now 3.1% above pre-pandemic levels having grown 6.9% last year – its fastest rate of growth since 1984. Similarly, the Spanish economy expanded at its highest rate since 2000 while the French economy’s average growth hit 7% – its highest level in 52 years.

While these figures demonstrate the strength of the economic rebound from the pandemic throughout many developed economies, given energy shortages, inflation and the level of public debt concerning many economists, such growth is likely to be an anomaly, not carried through into 2022.

Nevertheless, the extent of the recovery during 2021 is likely to put further pressure on the BoE to tighten their monetary policy and potentially solidify the faction existing between those four members of the MPC who voted to raise rates 50bps and the five who voted for 25bps.


Yesterday, the markets also reacted to headline US CPI data which came in 0.2 percentage points above expectations at 7.5%. This is the highest level of inflation seen in the world’s largest economy since February 1982 with inflationary pressures hitting energy and gasoline hardest with a y-o-y rises of 27% and 49.6% respectively.

The breadth and depth of inflation in the US economy has underlined how flawed the assumption that price increases would be transitory really was.  Now though we find ourselves in a different position and slightly concerned that a steep hiking cycle with price rises having already taken hold, and the lag between monetary policy decisions and the time it takes to transmit through the economy, consumers may have already voted with their feet and reduced household spending during the next six months. Such a situation would mean that as we progress through the year, lower consumer spending and significantly higher rates slow growth more than the Fed would wish. Hence, in light of yesterday’s data all eyes will be on the Fed’s next FOMC meeting on 16th March where many analysts are now considering whether a rate hike of 50bps is voted for.

Yesterdays data saw the stock market move higher with DowJones, S&P and Nasdaq all finishing higher. This was a similar story with oil with Brent finishing at 91.67 dpb and with growing geopolitical tensions in Eastern Europe, many analysts are predicting that oil continues to rise.

Have a great day.


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