The benchmark London FTSE 100 index ended lower for the week because of concerns about aggressive increases in interest rates and a sharp slowdown in the world economy. This happened despite a 1% boost given to the index on Friday by defensive and energy stocks.

Index performance

There was a 1.7% gain in the FTSE 100, thanks to energy giant Shell and defensive stocks like British American Tobacco and AstraZeneca. There was a 1.9% gain in the FTSE 250, which is domestically focused.

Market analysts said that some of this was because investors have decided to buy the dip and some of it was also because of some sort of update from the US Federal Reserve. However, they added that the primary focus of the market was on the economic performance in the next six months. The inflation figures for the UK are scheduled for release in the next week. Analysts believe that the numbers will be quite hot and this is bound to rattle investors once more.

Interest rate

Dave Ramsden, the Deputy Governor of the Bank of England (BoE), stated on Thursday that they would need to further hike up the interest rates in order to prevent the persistent inflation from rising more. Investors have priced in a 72.5% possibility of a 50 basis points increase in the interest rate by the Bank of England in its meeting scheduled for August 4th.

On Friday, global equities were able to recover some of their losses, as investors’ expectations of a more aggressive interest rate hike by the US Fed came down because of stronger US retail sales data. Plus, it was also supported by some Fed policymakers.

However, investor sentiment continued to feel the pressure because of a slowdown in Chinese economic growth brought on by the widespread COVID-19 curbs

COVID lockdown impact

The COVID lockdowns in China took their toll on a number of companies, including Burberry, as London’s luxury brand only recorded 1% growth in its sales as compared to the first quarter. Its shares declined by 3.8% due to weakness in China.

There was also a 7.7% decline in BT Group which saw it hit the bottom of the FTSE 100 index. This happened after media reports indicated that Virgin Media O2, its peer, was looking into buying their broadband competitor named TalkTalk.

There was also a 27.7% decline in Fevertree, as the tonic maker reduced its annual forecast of profits because of worsening logistical problems and cost pressures. A gain of 23.7% was recorded in the shares of Aston Marin, as the luxury automaker’s second largest shareholder became the sovereign wealth fund of Saudi Arabia. It also announced that it was interested in raising about 653 million pounds.

Meanwhile, the Sterling was doing much better on Friday against the US dollar, as the latter lost some of the gains it had made. But, analysts do not expect the British currency to stay at that level, given the bleak economic outlook in the United Kingdom.

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