UK to fair better despite volatility
A North-East stockbroker said UK markets should not be as badly affected as the Dow Jones, despite market volatility which saw the FTSE 100 down 16 points within an hour of opening today.
Anthony Platts, divisional director of Wise Speke, said despite the global credit crunch, which saw Asian shares slide heavily on the back of heavy Wall Street losses, the FTSE would fair better.
“The fact we were down 16 points after less than an hour of trading is not too bad considering how far the Dow Jones in the States fell last night,” he said.
“The UK should not be as badly affected as the US through the problems in the sub-prime market, and at some point, the market will be in a technically oversold position where the share prices have gone beneath fair value.
“It will continue to be volatile for a while, but what may provide some respite is cuts in interest rates in the near future.”
The British Chambers of Commerce (BCC) has also reiterated calls for the Bank of England to cut interest rates after “disturbingly weak” export data suggested the economy was heading for a marked slowdown.
The BCC urged rate setters at the Bank’s Monetary Policy Committee (MPC) to bring rates down from 5.5% as it unveiled the results of its latest quarterly economics survey.
The poll of 4,600 British firms showed a worrying drop in activity in the manufacturing and service sectors, with businesses also saying they intend to put employment and investment growth on hold.
But the survey revealed that pricing pressures for manufacturing and service firms were running at their highest in more than 10 years, signalling tough times ahead for the MPC to keep inflation under control, according to the BCC.
David Kern, economic adviser to the BCC, said: “The latest results show the tough position that the MPC is in as it contemplates its next move.
“The pressure that many firms are feeling on pricing show inflationary pressures that may be hard to keep a lid on.”
However, Mr Kern said talk of a recession in the UK was “unjustified and must be strongly resisted.”
“If the right policies are adopted the damage associated with an economic slowdown can be limited,” he said.
The MPC voted to keep rates on hold at 5.5% last week despite having advance viewing of this week’s inflation data, which showed that the Consumer Prices Index (CPI) remained above the Government’s 2% target for the third month in a row in December, at 2.1%.
Bank of England policymakers are widely expected to cut borrowing costs next month, although the BCC said the intentions of firms to raise prices leaves the MPC with little room to manoeuvre.
Manufacturing firms reporting pressure to raise prices rose by nine percentage points to a positive balance of 41% in the BCC’s survey for the fourth quarter of 2007.
Service sector firms expecting to increase prices rose by 12 percentage points to a positive balance of 40%.
Meanwhile, the survey’s results for export sales in the manufacturing sector fell to its lowest level since the first quarter of 2007 and for the service sector, the outcome dropped to its worst since the fourth quarter of 2005.
The London market endured a third day of losses yesterday as further fears over a recession in America and the impact of the credit crunch erased earlier gains.
News of an economic rescue package for the US from Federal Reserve chief Ben Bernanke failed to allay concerns as investors focused instead on comments suggesting the downturn was fully underway, and President Bush is set to make his first public call for emergency legislation to stimulate the flagging economy later today.
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