Week ahead: City braces for further inflation surge

Investors are bracing for fresh data this week to point to a further surge in UK inflation, sending the rate of price rises beyond an already 40-year high.

London’s FTSE 100 last week was caught up in one of the most volatile weeks for global stock markets since the early days of the pandemic.

It shed just over four per cent, while the mid-cap domestically-focused FTSE 250 index, which is more aligned with the health of the UK economy, lost 3.8 per cent.

Traders ditched equities as they sobered up to the world’s top central banks pruning ultra-stimulative policy that has been in place since the financial crisis and was ramped up during the Covid-19 crisis.

New inflation figures – covering May – published on Wednesday are expected to hit 9.1 per cent, a shade over the most recent crop of data.

Hotter inflation will intensify investors’ pessimism about the trajectory of the UK economy over the next year or so. 

Last week, the Bank of England said the economy will contract 0.3 per cent in the current quarter and raised its expected inflation peak to just over 11 per cent.

The tightening cost of living is likely to have pushed consumer confidence below what is already the lowest level recorded since records began in the 1970s. GfK publishes its long running survey on Friday.

An end to the NHS Test and Trace service and free Covid-19 testing will have narrowed the government deficit last month, fresh borrowing figures are likely to show on Thursday.

However, rampant inflation will again take its toll on the UK’s debt interest bill. A large proportion of the UK’s stock of debt is linked to the retail price index, but the government pays back this debt over a long period.

House builder Berkeley Group leads the agenda on the corporate front, posting final results on Wednesday.