The FTSE 100 has followed the lead of Wall Street: London’s blue-chip index is now up by 0.8% with just over an hour of trading remaining.
For investors it is all about treading the tightrope: will there be recessions as is widely feared? Will central banks have to tighten interest rates more than expected to tame inflation? Can they navigate the “soft landing” that avoids too much pain for the broader economy?
The US jobs numbers last week “blew away the fears of recession which had been sparked by the news that GDP had declined in both the first and second quarter”, said Rupert Thompson, an investment strategist at Kingswood, a wealth manager. But questions remain for the UK.
There are certainly more UK rate rises ahead, he said. The question is whether bleak forecasts from the Bank of England will come true:
The surprise was much more in the doom and gloom emanating from the Bank’s latest economic forecasts. It is now forecasting inflation to peak as high as 13% in October and a lengthy recession. GDP is expected to start contracting late this year and only emerge from recession in early 2024, falling a cumulative 2.2%. Meanwhile, the unemployment rate is projected to rise from 3.8% to 6.3% by 2025.
The hope is that this latest set of forecasts prove as wrong as its recent projections. Indeed, the Bank itself acknowledged the large uncertainties surrounding its estimates. It is also worth noting that the forecasts do not incorporate the additional fiscal support measures certain to be enacted regardless of whether Truss or Sunak becomes PM.
Economists think the UK economy is already contracting, according to a poll by financial data company Bloomberg. If that is correct the Bank of England’s forecasts are already wrong, points out Danny Blanchflower, a former member of the Bank’s monetary policy committee.
UK economy shrank in second quarter according to poll of economists – business live if so mpc forecast wrong in a week https://t.co/MOFZYPW940
— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) August 8, 2022
That’s it for today’s business live blog, but you can continue to follow our live coverage from around the world:
In our UK politics coverage, Labour claims No 10’s refusal of emergency budget shows Tories have lost control of the economy
In our US coverage, Biden visits flood-ravaged Kentucky after Senate passes $739bn healthcare and climate bill
In our coverage of the Russian invasion of Ukraine: Moscow-controlled Zaporizhzhia is set for vote on joining Russia, and the UN chief calls for access to the threatened nuclear plant there
Thank you to everyone who joined us today. Do join us tomorrow for more live coverage of business, economics and financial markets. JJ
Wall Street has gained ground on Monday morning trading, with the tech-heavy Nasdaq up by 1%.
It looks like something of a bounceback after a steep drop at the end of last week following very strong US jobs data. The Federal Reserve could be forced into more rate hikes if the US economy is running hotter than it thought.
So the US economy might be doing well, but with inflation rising that could make the Fed hike more aggressive.
Reuters reported:
Wall Street’s main indexes rose on Monday after last week’s blockbuster jobs data soothed some fears about an economic slowdown, but investors remained cautious as it also added to expectations of a hawkish Federal Reserve.
