April 17, 2024

UK Midcaps Reach New One-Month Low

On Tuesday, the British midcap index declined to a fresh low of one month, as news of business growth turning out to be slower than expected and the looming energy crisis in Europe fueled recession fears.

Meanwhile, the exporter-heavy FTSE 100 index in the UK was also weighed down because of a stronger British pound.

Continuous decline

There was a 1% drop in the domestically oriented FTSE 250 index for the day, which made it the third straight day of decline for the index.

This was because soaring prices of gas in Britain fueled worries about a rise in inflation that has already put the economy under massive pressure.

Results of a closely watched survey revealed that the private sector growth in Britain had slowed to a crawl in the month, as there was only a modest expansion in the service sector and factory output also declined.

This all added to indicators that an economic recession might be looming in the UK. Market analysts said that even though there is still growth, there are fears that the economy could dip into contraction territory.

Moreover, there have already been multiple hikes in the interest rate by the Bank of England (BoE), but this has not dented inflation at all.

Therefore, it is likely that they will continue hiking interest rates and this will only worsen the situation. Investors believe that there will be another 50 basis points hike in the next month’s meeting of the central bank.

FTSE 100

There was also a 0.6% drop in the FTSE 100 index, as stocks of consumer staples and pharma companies were weighed down by a stronger pound, as they generate their revenue in US dollars.

There was also a rise in sterling against the greenback after the US economic data turned out to be weaker than expected, thereby fueling hopes that the Fed might pivot from its hawkish stance.

There has been a 7% rally in the blue-chip FTSE 100 index from its lows recorded in mid-June, which was partly because of strong corporate earnings.

Furthermore, the index also comprises global companies for the most part and includes firms that belong to the defensive sectors.

Other aspects

Market analysts said that participants were trying to decide whether the recent rally that had been in the market for about a month was just a bear market short covering.

It is also possible that the rally was because of overly positive expectations about the British central bank changing its policy in the next year, or that most of the bad news has already been priced in.

There was a 2.4% drop in Wood Plc, as far as single stocks are concerned. This was after a 5% drop in core earnings was reported by the oilfield services and engineering company because of operations in the first half.

The Bank of England already hiked interest rates this month by 50 basis points and is not likely to slow down because the inflation numbers continue getting hotter.

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