20 January 2022
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UK inflation rises to 30-year high

By Daniel Richards

  • Inflation in the UK rose to a higher than expected 5.4% y/y in December from 5.1% in November, as food prices jumped to a nine-year high. Rising energy prices are likely to push inflation higher in the coming months, before easing in H2 2022. Core CPI accelerated to 4.2% y/y from 3.9% in November. The Bank of England is expected to raise the benchmark policy rate by 25bp at the February meeting.
  • German inflation rose 0.5% m/m and 5.3% y/y in December, unchanged from November and in line with consensus estimates.       
  • US housing starts rose by a bigger than expected 1702k in December, the fastest increase in nine months.  In 2021 as a whole, 1.6mn homes were started, up 15.6% y/y. Applications to build also increased December, as did permits.
  • Turkey has agreed a USD 4.9bn currency swap with the UAE as it seeks to boost its FX reserves.  Turkey already has swap lines in place with Qatar, South Korea and China. Gross reserves, which includes the swap facilities, stood at USD 110bn as of 7 January. The Turkish Central Bank is expected to keep interest rates on hold at its policy meeting today.
  • Hotel occupancy in Dubai stood at 77.3% in December according to STR Global, an improvement on the 69% occupancy achieved in December 2020 but slightly lower than the occupancy rates achieved in October and November last year. The emergence of the Omicron strain of the coronavirus in early December led to some tightening of travel restrictions globally which likely deterred some tourists. Revenue per available room increased 76% y/y to USD 200 per night in December 2020.

Today’s Economic Data and Events

14:00 Eurozone CPI (Dec) forecast 5.0% y/y prev 4.9% y/y

15:00 Turkish one week repo rate decision

17:30 US Initial jobless claims (15 jan) forecast 225k prev 230k

19:00 US Existing home sales (Dec) forecast 6.43m

Fixed Income

  • Treasuries snapped some of their recent losses, at least on the long-end of the curve. Yield on 10yr USTs fell almost 1bps overnight to 1.8646% while the 2yr yield edged up slightly. Markets continue to price in a clear probability of a March rate hike by the Fed.
  • UK markets showed more action overnight as elevated inflation pushed yields higher. Yields on 2yr gilts added 4bps to 0.899% while the 10yr gilt yield added around the same to settle at 1.255%.


  • Currency markets moved away from the dollar overnight with the DXY index falling by 0.2% to 95.51. Gains were spread out across peers with EURUSD adding 0.16% to 1.1343, USDJPY down 0.24% to 114.33 and GBPUSD adding 0.12% to 1.3612.
  • In commodity currencies, both AUD and NZD managed to rally, up 0.36% and 0.21% respectively. USDCAD was relatively unchanged, holding at 1.2515 even as inflation accelerated in December and cements a rate hike from the Bank of Canada next week.  


  • Equity markets were mixed yesterday. Asian markets started the day off on the back foot, with the Nikkei dropping -2.8% and the Shanghai Composite -0.3%.
  • In the US, the S&P 500 saw some swings in either direction through the day before finally finishing the session down -1.0%. The Dow Jones also dropped -1.0%, while the NASDAQ lost -1.2%. Things had been moderately more positive in Europe earlier in the day despite some big inflation prints released. In the UK, the FTSE 100 ended the day up 0.4%, while France’s CAC added 0.6% and Germany’s DAX 0.2%.
  • Locally, the DFM dropped -0.3% but the ADX closed 1.6% higher. The Tadawul also closed higher, adding 0.5% on the day.


  • Oil prices extended their gains overnight with Brent future up 1% to USD 88.44/b and WTI closing up 1.8% to USD 86.96/b. The pipeline linking Iraq and the Mediterranean through Turkey has reportedly been repaired, helping to remove one of the near term pressures in the market.
  • The IEA revised up its demand expectations for oil this year slightly, helping to narrow their forecast of a surplus this year. The agency cautioned that spare capacity will be particularly tight in the second half of the year as few countries in OPEC+ have capacity to increase production in line with their targets.

Click here for charts and tables





Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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