The FTSE 100 stumbled again on Tuesday as investors became increasingly nervous about the implications of key central bank meetings this week and reacted to downbeat UK economic forecasts from the IMF.
The FTSE 100 was 0.75% weaker and sterling slipped 0.2% against the dollar.
Interest rate decisions
It’s not the actual rate decisions from the Federal Reserve and Bank of England causing concern, rather the trajectory for rates in 2023.
“This week’s US central bank decision on interest rates is incredibly important to the future direction of stock markets. Investors have been feeling quite relaxed of late, with a risk-on mentality when it comes to bidding up equities. Increasingly a lot of people have become confident that US rates are close to their peak in this part of the cycle, hence a strong run for many markets since late 2022,” said Russ Mould, investment director at AJ Bell.
However, most major economies have been remarkably resilient and offer little reason for central banks to reverse rate hikes this year. Indeed, the IMF sees strength across G7 economies this year. Apart from the UK, that is.
IMF growth forecasts
The IMF issued a report last night and amended global GDP forecasts for 2023 with all G7 economies now expected to expand, with the expectation of the UK. Even the Russian economy is now expected to grow this year.
The IMF predicts the UK economy will shrink 0.6% in 2023, before returning to growth in 2024. Global growth is forecast to be 2.9% this year.
Global growth remains weak, but it may be at a turning point. We have slightly increased our 2022 and 2023 growth forecasts. Global growth will slow from 3.4% in 2022 to 2.9% in 2023 then rebound to 3.1% in 2024. https://t.co/TxZ9Co4S0j pic.twitter.com/elHTkvgUAA
— Gita Gopinath (@GitaGopinath) January 31, 2023
“Overnight, the IMF published their global forecasts with a bump in GDP growth and easing inflation metrics. While the forecasts are welcome for most economies, the UK was singled out as the only G7 economy forecasted to shrink this year,” said William Marsters, Senior Sales Trader at Saxo UK.
“This will be a disappointing news for Britons as today marks the 3-year anniversary of Brexit. Adding salt to the wound, a separate report by Bloomberg Economics said that Brexit is costing the UK economy £100 billion a year in everything from foreign investment, business opportunities and labour supply.”
This disappointment was reflected in the FTSE 100 shedding 0.75% to trade at 7,724.
Although, UK-centric sectors such as the housebuilders and UK banks were weaker, the selling across the index was broad. Miners and oil majors were down and dragged on the index.
Anglo American, Glencore, Endeavour Mining and Fresnillo were among the top fallers. Shell and BP fell 1.2% and 1.8% respectively.
Ocado was the FTSE 100’s top faller, giving up 3.5% of their value. Diageo rallied 2.3% after a bout of selling since reporting late last week and was the FTSE 100’s top gainer.