FTSE 100 records worst day in seven weeks as recession worries rise

Signage is seen outside the entrance to the London Stock Exchange in London, Britain. August 23, 2018. REUTERS/Peter Nicholls/File Photo

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  • The two main British indices show a monthly decline
  • FTSE 100 down 1.1% and FTSE 250 down 0.5%

Aug 31 (Reuters) – Britain’s FTSE 100 posted its worst daily performance in seven weeks on Wednesday as warnings of even higher inflation in the coming months raised fears of a deep recession in Britain.

The FTSE 100 closed down 1.1% and posted a monthly decline of nearly 2% in a brutal August that saw homebuilders (.FTNMX402020), automakers (.FTNMX402020), automakers (. FTNMX401010) and retailers (.FTNMX404010) take the biggest hit.

Inflation is at its highest level in 40 years, at over 10%, and with energy bills set to jump 80% from October, it is expected to rise further. Goldman Sachs warned earlier this week that inflation in Britain could top 20% early next year. Read more

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“When we look at some of these inflation indicators it’s obviously deeply concerning because it all feeds into the idea that the Bank of England has a lot more to do which is going to put more pressure on the economy and it’s going to be harder to master in the end,” said Craig Erlam, senior market analyst at OANDA.

The Bank of England will make another exceptional 50 basis point (bp) interest rate hike next month, then slow the pace to a more steady 25 basis point hike in November before pausing , according to a Reuters poll. Read more

Meanwhile, Britain’s impending new prime minister – who will be either Foreign Secretary Liz Truss or former finance minister Rishi Sunak – will be announced on September 5, with polls indicating Truss is the clear favourite.

The two candidates have clashed over how to respond to soaring energy prices, with Truss initially saying she would rather cut taxes than give “handouts”.

The national mid-cap index (.FTMC), which has significantly underperformed its international counterpart this year, fell 0.5% and recorded monthly losses of 5.4%.

UK business confidence fell to its lowest since March 2021 as businesses worried about rapidly rising inflation, according to a survey, which also showed wage pressures stabilizing after a recent rise. Read more

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Reporting by Bansari Mayur Kamdar, Johann M Cherian and Aniruddha Ghosh in Bengaluru; Editing by Krishna Chandra Eluri and Bernadette Baum

Our standards: The Thomson Reuters Trust Principles.

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