On Wednesday, the blue-chip FTSE 100 index in the United Kingdom declined, after global markets were slammed because of the hotter-than-expected inflation data in the US. Meanwhile, worries of an economic recession in Britain continued to persist, despite the economy showing surprising growth.
There was a 0.7% in the FTSE 100 index, as it comprises a number of global companies that generate most of their revenue in dollars, and there was also a rise in the British pound. According to data, there was unexpected growth in the British economy back in May, which was primarily because of demand for holidays and an increase in doctor appointments.
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This data can provide reassurance to the Bank of England about its plans of continuing with the increases in interest rates. As far as the US CPI data is concerned, it fueled worries about the Federal Reserve taking a more aggressive stance in terms of interest rate hikes, which could drive the world’s largest economy into a recession.
Rise in pressure
Market analysts said that there would now be pressure on the Bank of England to increase interest rates by 50 basis points and also on the European Central Bank (ECB) to do the same. Experts said that the data would just add more pressure on monetary authorities to become more aggressive in order to control the rising inflation.
The figures that have made a hike of 25 basis points increase come off as inadequate. While none of the two banks target the exchange rate when coming up with their monetary policy, but there is no doubt that they will have to discuss the impact of a weaker euro or pound.
After the release of the US inflation data, there was a drop in European markets and the euro also touched parity against the greenback for the first time in over two decades. The currency continued to suffer because of a hawkish US Fed and the rising worries of an economic recession.
There was a 0.8% decline in the FTSE 250 index, which is domestically focused, and an 8.3% decline was recorded in pub operator JD Wetherspoon. This was after it warned that higher market and labor costs this year would lead to losses.
The company’s shares came down to their lowest since March 2020 when markets had been hammered because of the coronavirus pandemic. There was a 3.2% and 5.6% decline in peers, Marston’s and Mitchells & Butlers, respectively.
Market analysts said that the problem for the pub sector is that the trend of drinking and eating at home is likely to continue after the pandemic as well. This is primarily because the cost of living crisis is accelerating and this will tighten the purse strings. There was a 5.0% decline in asset manager Abrdn after its stock was downgraded to ‘underweight’ by Barclays.
The interest rate hikes that are expected from global central banks in the next couple of weeks will also determine the direction of markets.
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