Worries about a global slowdown reverberated around the City and the world today, after official numbers from China showed the world’s economic powerhouse was barely growing.
The concern came at the start of a key week for UK data, with inflation expected to stay above 8% even after 13 consecutive rate hikes from the Bank of England.
China’s lacklustre numbers undermined hopes that a strong rebound there after the end of Covid restrictions could help energise the wider global economy, with a wave of pent-up demand. For the second quarter, China’s gross domestic product rose by just 0.8% from the previous three months.
The latest expansion was sharply lower than the 2.2% seen between January and March. Although it was higher than the 0.5% forecast, the reading dashed hopes that the kind of growth rates from the early part of 2023 could remain part of the economic outlook.
London is home to a range of multinational resource and mining companies that depend on demand from China for the metals that they produce. They were among the biggest fallers on a retreating FTSE 100. Chilean copper giant Antofagasta fell 28p to 1509p and Anglo American lost 41p to 2309p.
City worries on the global outlook came at the start of a week when the main domestic economic threat will dominate the agenda: Inflation.
The UK Consumer Price Index, out on Wednesday, will shed light on how much work the Bank of England has left to do to tame inflation – which was at 8.7% on an annual basis last time, even after 13 consecutive rate hikes – and is forecast to ease to 8.2% for June when out this week.
Michael Hewson at CMC Markets predicted that the inflation numbers “probably won’t alter the calculus around a quarter-point rate hike by the Bank of England in 2 weeks’ time, however a strong number could increase the pressure to go bigger and hike by a half-point, which for now looks the most likely outcome.”
The BOE’s last meeting took the base rate to 5%, with a half-point rise.
The impact of the BOE’s long run of hikes on hard-pressed households was highlighted today by the Resolution Foundation. The think tank focused on low-and-middle-income families said today that interest rate rises “have caused household wealth across Britain to fall by £2.1 trillion over the past year,” the biggest drop in household wealth since World War II.
Resolution said there are 1.7 million households expected to re-mortgage next year, with their repayments expected to rise by an average of £3,000.
With China less likely to provide a boost to the global economy and the difficulties closer to home coming back into view, it could be a tense week in the City around the half-way point for 2023.
