FTSE 100 Live: Stagflation fears continue to hit pound, house prices up again

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volatile week for stock markets is ending with the pound at a two-year low and shares under more pressure as stagflation fears grow.

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Sterling’s weakness came as the Bank of England warned of recession and Wall Street traders reignited their fears of large hikes in US interest rates in the fight against inflation.

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Despite the economic uncertainty, British Airways owner IAG and InterContinental Hotels have become the latest companies to report resilient trading as they continue to see a strong pick-up in travel demand.

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House prices up again, longest run of gains since 2016

The economic uncertainty appears to be having little impact on house prices after lender Halifax reported that property values ​​increased by 1.1% in April and by 10.8% on an annual basis.

The tenth consecutive monthly increase is the longest run of continuous gains since the end of 2016 and takes the average figure to another record high of £286,079.

Halifax managing director Russell Galley said continued growth in new buyer enquiries suggests activity will remain heightened in the short-term.

He added: “The imbalance between supply and demand persists, with an insufficient number of new properties coming onto the market to meet the needs of prospective buyers and strong competition to secure properties driving up prices.”

However, Galley predicted that the rate of house price growth will eventually slow as incomes are squeezed.

He said: “The house price to income ratio is already at its highest ever level, and with interest rates on the rise and inflation further squeezing household budgets, it remains likely that the rate of house price growth will slow by the end of this year “

The rate of annual house price inflation in London continues to lag the rest of the UK, with prices now up by 6.2% year-on-year.

However, average property values ​​in the capital remain much higher than the rest of the country, with the latest average house price figure of £537,896 a new record for the city.

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Pound remains under pressure

The pound continues to struggle against the US dollar after falling more than 2% yesterday in the wake of the Bank of England’s gloomy economic assessment.

There was no respite today, with sterling still trading at below $1.24 for its lowest level in almost two years.

The pressure came as traders re-assessed the likely path of future rate hikes in light of forecasts that the UK economy may contract in 2023. End-of-year rate expectations eased back by around 17 basis points to between 2% and 2.25% following the Bank update.

Investec chief economist Philip Shaw said: “Our own forecast is that the Bank rate will rise by another 0.25% to 1.25% in August, but we maintain that there is too much tightening priced into the curve and that poor economic news has the potential for markets to reappraise their views further.”

In contrast, US markets continue to expect an aggressive approach by the Federal Reserve, with another half point rise in rates due next month.

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Hammering for tech stocks sets tone for weak session

A big slide for New York technology stocks, with Amazon and Netflix 7% lower, means European markets face another difficult session.

The Nasdaq lost 5% and the Dow Jones Industrial Average closed 3% lower in a turnaround of fortunes from big gains the previous session.

Sentiment had initially been stronger after Federal Reserve chairman Jerome Powell’s comments about not wanting to raise interest rates by more than half a percentage point in the battle to control inflation.

Despite his reassurances, the 10-year US bond yields later returned above 3% as Wall Street revisited the possibility of a 0.75% rise at the Fed’s next meeting in June.

Stock market sentiment further weakened and the pound fell sharply after Bank of England governor Andrew Bailey warned that the UK economy will contract in 2023.

Michael Hewson, chief market analyst at CMC Markets, said: “Whereas Powell adopted a sombre but optimistic tone that the Fed could achieve a soft landing, Bailey was much gloomier about the outlook as the Bank downgraded the outlook for the UK economy.

“This gloomy stagflation/recessionary outlook may well have prompted investors to reassess the initial optimization of central bankers, on either side of the Atlantic to engineer a soft landing for the wider global economy, at a time when growth is already slowing, and prices are still climbing.”

Hewson sees the FTSE 100 index opening three points lower at 7500, but with sentiment generally weakening after the top flight lost an initial 1.5% gain in yesterday’s session.

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Credit: www.standard.co.uk /

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