City braces for new inflation and borrowing numbers

Sunday, October 16, 2022 12:12 PM

Last week, the FTSE 100 index fell 1.89% to end at 6,858.79 points after being rocked by Prime Minister Liz Truss who ditched Chancellor Kwasi Kwarteng (Photo Illustration by Christopher Furlong/Getty Images )

The city is bracing for another busy week of new data illustrating the health of the UK economy.

Last week the FTSE 100 index fell 1.89% to end at 6,858.79 after being rocked by Prime Minister Liz Truss who ditched Chancellor Kwasi Kwarteng.

The domestically focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, lost a similar amount last week to close at 17,032.82 points.

New inflation data released on Wednesday is expected to show prices continuing to rise rapidly, with the city expecting the headline rate to fall from 9.9% to 10%, five times the 2% target of the Bank of England.

But, analysts said there was an external risk that inflation remained flat over the past month.

“Falling prices at the pump, as well as travel and accommodation prices (after the summer) could end up keeping the annual CPI rate stable in September,” said Sanjay Raja, senior economist at Deutsche Bank.

New public finance figures released on Friday will be seen as signs of the scale of the challenge facing new Chancellor Jeremy Hunt in reducing the UK’s debt pile.

Hunt has previously tried to calm markets by insisting that taxes will have to rise and government spending will grow more slowly than expected.

Figures released on Friday are expected to show a 4% decline in retail sales, underscoring that consumers are reacting to searing inflation by cutting consumption.

Monday could also bring further volatility to the UK debt market. It is the first trading day since the end of the Bank of England’s £65bn emergency bond purchase programme.

Last week UK gilt yields, which move inversely to prices, soared despite Truss reversing his plans to keep corporation tax at 19%.

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