On Thursday, the FTSE 100 declined and recorded the first drop in a quarter since September of 2020. This was due to concerns that prolonged and soaring inflation would push central banks to take aggressive action, which could lead to a downturn in the global economy.
The decline in the index
There was a 2.0% fall in the blue-chip index and it also saw the biggest decline in a month, which had last happened in March 2020. Nonetheless, it was still able to deliver a much better performance as compared to its global peers because of its exposure to global companies and those linked to commodities.
Market analysts said that the FTSE 100 does not have a lot to do with the United Kingdom itself, so the local inflation and recession do not have much impact on it. However, they did add that if there was going to be an economic recession globally, it would take its toll on the index because the demand for commodities would also take a hit. This means the index would also end up suffering.
There was also a 2.0% decline in the mid-cap FTSE 250 index and its total decline for the quarter ending in June was about 11.7%. This is because investors have priced in reduced corporate earnings and lower economic growth in the United Kingdom due to surging inflation. As a matter of fact, the Bank of England believes that inflation will cross the 11% mark in the month of October.
The local index is already in trouble and has entered a bear market, as it has declined by more than 23% for the year after it had reached a record high last year in September.
There was a 0.8% expected growth in Britain’s economy in the first quarter of the year, but there is a good chance it has shrunk in the next quarter. This is because it is likely that inflation took its toll on demand, as numbers show that it had reached a high of 9.1%. This is the highest it has been in four decades and the highest number to be recorded amongst all G7 countries as well, which is certainly concerning.
Meanwhile, losses on the FTSE 100 index were led by retailer B&M European Value Retail and mining company Anglo American, as both of them declined by more than 5%. There was also a fall of 2.3% and 2.4% in heavyweight oil companies, such as Shell and BP Plc., while mining stocks and industrial metal stocks also recorded losses.
There was a decline in Lloyds, HBSC Holdings, and Natwest Group between 1.3% and 3.0% after their stocks saw the price targets reduced by Barclays. A gain of 1.8% was recorded in Bunzl Plc after the business supplies distributor revealed that it was expecting a higher revenue. This was because some of its last year’s acquisitions had turned out to be beneficial and the surging inflation had also given it a boost.