Week ahead: City shapes up for possible double-digit inflation

The City is bracing for a week brimming with big economic announcements that will shed more light on the health of the UK economy.

London’s premier FTSE 100 index notched a decent performance last week, gaining nearly one per cent to close at a shade over 7,500 points.

The mid-cap domestically-focused FTSE 250 index, which is more aligned with the health of the UK economy, fared better, climbing 1.43 per cent to round off a quiet week at 20,338.96 points.

Traders are unlikely to make any sudden moves at the beginning of the week before new unemployment and inflation data are released on Tuesday and Wednesday respectively.

Most analysts think joblessness held steady in July. But, inflation will surge even higher to 9.8 per cent, again, breaching recent records. It is already running at a 40-year high.

“Driving the rise in inflation is a combination of higher petrol prices, food prices, and services inflation, with the latter driven by strong transport (airfares mainly should tick up strongly in July), catering and package holiday prices,” Sanjay Raja, senior economist at Deutsche Bank, said.

Michael Hewon, chief market analyst at CMC Markets UK, warned the rate of price rises may venture into double-digits.

Inflation figures have become the most closely watched economic indicator by investors this year due to fears the UK will tip into recession as a result of consumers responding to higher prices by cutting spending. The Bank of England thinks the UK will fall into recession in the final months of this year and stay there for around 15 months.

Friday is set to bring more woe. GfK’s long-running consumer confidence survey may dip to minus 42, according to economists. That would be the lowest reading since records began in the 1970s.

The increase in the national insurance threshold is likely to have partly caused the government to borrow nearly £3bn last month, experts think figures on Friday will show.