Week ahead: City braces for soft economy data and US inflation figures

Top of City traders’ minds this week will be whether fresh GDP figures reveal the UK is already in the early stages of the drawn out recession the Bank of England forecast last week.

Despite the economic doom, London’s FTSE 100 was broadly stable, edging 0.16 per cent lower to close the week at 7,439.74 points.

The domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, dropped 0.76 per cent to close at just above the 20,000 mark.

Investors are betting Friday’s new GDP print will show the economy shrank 0.1 per cent over the last quarter and 1.1 per cent in June.

If borne out, those figures would raise the risk of the UK falling into recession earlier than the Bank’s final quarter projection last week.

A recession is defined as two consecutive quarters of negative growth, meaning Britain would steer into reverse if the economy also contracted in the third quarter.

“We expect second quarter 2022 GDP to land around -0.2 per cent quarter on quarter, registering its first quarterly contraction since first quarter 2021,” Sanjay Raja, senior economist at Deutsche Bank, said. 

“However, the magnitude of the drop will depend on the impact of the Jubilee weekend, with the extra Bank Holiday weighing on output,” he added.

Fresh US inflation data published on Thursday may strengthen bets on the Federal Reserve hiking interest rates 75 basis points for the third month in row if it comes in hotter than expected.

New jobs figures published last week smashed Wall Street’s expectations, indicating the Fed has some wiggle room to keep tightening borrowing costs without plunging the world’s biggest economy into recession.

US growth has been negative for two quarters in a row.

On the corporate side, FTSE 250-listed estate Savills updates markets on Thursday. New housing data from the Royal Institution of Chartered Surveyors is out on the same day.