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FTSE 100 gains despite Bank of England’s Andrew Bailey warnings on inflation

Jim Armitage
·2-min read

The FTSE 100 gained today after shrugging off Bank of England governor Andrew Bailey’s warnings about the prospect of rising inflation.

Markets have been spooked by concerns that central banks will have to raise rates due to the inflation that will arise as a result of the economic recovery from Covid combined with the pandemic fiscal and monetary assistance programmes.

Bailey acknowledged that inflation would rise as fuel price cuts a year ago fell out of the annual calculation.

However, while acknowledging that the further stimulus from last week’s Budget would also be factored into the Bank’s considerations, he was careful to temper market concerns by stressing that would not necessarily drive the Bank to raise rates.

“We will need more evidence than we usually do that we are seeing sustainable inflation,” he said.

After a cautious start, the FTSE 100 made steady gains through the morning to be 50.25 at 6769.33 despite a late sell-off on Wall Street last night. The gains added to yesterday’s 89 point rise.

Wall Street struggled yesterday, with the S&P 500 falling 0.5% amid selling pressure on Big Tech. Sharp falls from Apple, Netflix and Amazon took the Nasdaq down 2.5%, pushing it into “correction” territory - a term used to mean a fall of 10% from its recent peak.

Tech stocks have fallen due to concerns about interest rates rising in the US - a factor being aggravated by President Joe Biden’s $1.9 trillion Covid support package plan.

Investors in London may feel that bodes ill for the stock market flotation plans of Deliveroo and Trustpilot, given that rising interest rates tend to attract capital away from higher risk, more speculative investments.

Scottish Mortgage Investment Trust, the Baillie Gifford fund that backs US tech, is down 32% in the past three weeks - a recent victim of that trend.

Today saw Scottish Mortgage leap 4% as investors bet on a recovery for US tech stocks in the US this afternoon.

M&G made big gains after upping its dividend, gaining more than 3% because most investors thought they’d go for a cut, which was what Standard Life Aberdeen did, resulting in a 4% fall in the shares.

Exports from Europe’s biggest economy are tipped to have fallen from a positive 1% in December to minus 1.2%.

Eurozone GDP numbers get a second estimate for the fourth quarter. They are likely to remain at -0.6% on a quarterly basis and -5% annually. As CMC Markets pointed out in a note to clients this morning: “Keep in mind the US and the UK grew by 4.1% and 1% in the last quarter of 2020. A negative reading from the euro area would cement its underperformance, as well as spark chatter about a potential recession.”

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