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And then what?

Written by Javier Maquieira, senior associate 
Edited by David Gaffney, partner
12 January 2022

Good morning,

Concerns over the Omicron variant have been giving way to an issue that threatens to rock British politics to its core.
 
Some economists have forecast a perfect storm brought by rocketing bills and tax rises in what’s already been dubbed a “cost of living crisis” in Britain. In short, this means most UK households will see their living standards reduced, with those already experiencing financial hardship expected to be hit the hardest. But what’s driving it?
 
For one, the coronavirus pandemic has disrupted global supply chains with pent-up demand, shipping delays, and staff shortages, which has in turn led to prices rising, particularly for raw materials but also for food. At the same time, energy bills are projected to soar, with the UK’s energy regulator, Ofgem, expected to raise the price cap by more than 50% this year. This would take the average annual bill to nearly £2,000, pushing many households into fuel poverty.
 
That’s not the only thing expected to affect living standards from April onwards, though. National insurance contributions will rise, by a significant amount, for both employees and employers, while changing levels of retail price inflation will gradually eat away the value of money.
 
Add to those the other areas of our lives that will continue to experience price spikes, such as rent and petrol, and the magnitude of the challenge becomes evident. So much so, that the commentariat has begun to agree the cost of living crisis is about to shape political dynamics in an extraordinary way. In fact, it’s already doing so.
 
Conservatives at Westminster have been clamouring for the prime minister to take action to tackle rising energy bills and inflation and to scrap the planned increase in national insurance. Meanwhile, Labour has unveiled its own proposals for tackling energy price rises, which include scrapping VAT on bills and introducing a windfall tax on North Sea oil producers – measures that they claim could save the average family £200, rising to £600 for those on low incomes.
 
With the cost of living rising so rapidly and the government facing scandal after scandal, Boris Johnson’s team has started the year with many questions to answer and many more people to appease. Whether it’s a price spike or a sleaze claim, it all keeps adding up.

News

Senior Conservative MPs have expressed anger at a rule-breaking garden party that took place in Downing Street on 20 May 2020. The prime minister is facing intense pressure from members of his own party to clarify whether he attended the “bring your own booze” gathering for up to 40 people, calling for him to apologise before the House of Commons during prime minister’s questions today.
 
Scotland’s first minister, Nicola Sturgeon, has announced a “phased and careful” easing of coronavirus restrictions. From next Monday, restrictions on large outdoor events in Scotland, including football matches and concerts, will be lifted, while the definition of “fully vaccinated” for the purpose of vaccine passports will include having a booster if the second dose was more than four months ago.
 
Novak Djokovic has blamed his agent for making a mistake on his Australia entry form when providing details of his travel in the days before his arrival in the country. In a statement on Instagram, the Serbian tennis player also admitted breaking isolation after he tested positive for Covid in what he has called an “error of judgment”.

Business and economy

The World Bank president, David Malpass, has warned that the global economy faces a “grim outlook” and “pronounced slowdown” in growth. The institution’s latest forecast predicts global growth will slow to 4.1% this year from 5.5% in 2021 as Covid and inflation pressures continue to bite. Malpass has said his greatest concern, however, is widening global inequality, with poorer countries especially vulnerable to economic damage from efforts to fight inflation.
 
Bain Capital and CVC Capital Partners are assembling a joint bid to pursue a multi-billion pound takeover of Boots, Britain’s largest high street chain of chemists. The retail behemoth, which trades from more than 2,000 stores and employs more than 50,000 people, is expected to be sold by its US owner, Walgreens Boots Alliance, this year.
 
The UK government has suspended the rollout of smart motorways until at least 2025 in response to safety concerns from MPs and motoring groups. The controversial schemes to convert stretches of the M3, M25, M62 and M40 will be paused until five years’ worth of safety and economic data have been collected.

Columns of note

Writing in The Times, Roger Boyes argues that a formal declaration of neutrality, backed by guarantees from Moscow and Washington, will not protect Ukraine from Vladimir Putin’s Russia. In his view, “Finlandising” Ukraine would prevent the country from receiving foreign military aid, deepening “corrupt dependencies on malign neighbours”. Instead, Boyes argues for the creation of a Nato-lite platform that can help protect allies in danger of invasion without making unrealistic commitments to collective defence. (£)
 
Rhiannon Lucy Cosslett criticises the Home Office-backed ‘safety app’ for women on the basis that it offers a facile response to the problem of violence against women. In a piece in The Guardian, she writes that only policy solutions targeting structural change will stop misogyny.

Markets

What happened yesterday?

London stocks closed lower on Monday, with housebuilders under particular pressure as the bill for cladding repairs increased. The FTSE 100 ended the session down 0.53% at 7,445.25, while sterling was weaker against the dollar by 0.15% at $1.36 but stronger versus the euro by 0.09% at €1.2.
 
Across the Atlantic, the tech-heavy Nasdaq Composite index rallied 1.4%, its biggest rise in three weeks, while the broad-based S&P 500 stock index rose 0.9%.
 
In company news:
 
Greggs shares were down 5.81%, following the news the bakery chain was raising the price of its famous sausage rolls.
 
Plus500 shares rose 3.13% after the global fintech firm said it had delivered an “outstanding” operational and financial performance during 2021, ahead of market expectations.
 
British Airways and Iberia owner IAG ascended 1.07% and budget airlines easyJet and Wizz Air gained 1.93% and 2.32% respectively, as concerns over the Omicron variant eased.

What’s happening today?

Interim results
Gateley Hldgs

Trading announcements
Sainsbury (J)
Nichols

Source: Financial Times

did you know

The first ever speeding ticket was issued in 1896 to a driver in Kent for going four times the legal speed limit. The driver was going at the breakneck speed of 8mph when the speed limit was 2mph. (Source: @qikipedia)

Parliamentary highlights

House of Commons

Oral questions
Women and Equalities (including Topical Questions)
 
Prime Minister’s Question Time
 
Legislation
Commercial Rent (Coronavirus) Bill: Remaining stages
 
Motions
Motions to approve a Money Resolution and a Ways and Means Resolution relating to the Glue Traps (Offences) Bill
 
Adjournment
Recognition of the condition long covid

House of Lords 

Oral questions
Investigation into potential breaches of the Commonwealth Charter by the government of eSwatini
 
Change in the UK’s diplomatic influence since it ceased to be a participant in the political cooperation meetings of the EU
 
Oral questions
Reconciling differences between nuclear possessor states and non-nuclear possessor states at the Review Conference of the Parties to the Treaty on the Non-Proliferation of Nuclear Weapons
 
Impact of rising energy prices on the most vulnerable people in society
 
Legislation
Police, Crime, Sentencing and Courts Bill – report stage (day 5)

Scottish parliament 

Portfolio Questions
Covid-19 Recovery and Parliamentary Business
 
Net Zero, Energy and Transport
 
Scottish Government Debate
Mental Health and Wellbeing in Primary Care Services
 
Members’ Business
S6M-02635 Fulton MacGregor: Scottish National Blood Transfusion Service

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