Last Monday, UK shares continued their slide from the previous week, with the FTSE 100 falling 1%. The largest faller, Reckitt Benckiser, lost 3.27% in value, citing tough market conditions. The Index rebounded on Tuesday, boosted mainly by the mining sector from rising copper prices, but also on the back of the latest survey from the Confederation of British Industry which showed that industrial production in the last three months increased at its fastest pace since the mid-1990s. After a mid-week recovery in share prices, UK stocks ended the week replicating Monday’s falls; the most significant movers being Anglo American which rose 13% over the week, and AstraZeneca which fell over 16% last Thursday due to a failed cancer drug trial.
In economic news, the International Monetary Fund (IMF) cut its forecast for UK growth for 2017 to 1.7% due to the uncertainty surrounding Brexit; however, its forecast for 2018 was unchanged at 1.5%. The Office for National Statistics (ONS) declared that UK growth during the second quarter, as measured by GDP, grew by just 0.3%. This was marginally below expectations but above the 0.2% growth seen in the first quarter of 2017. Expansion was driven mainly by the services sector but offset by a decline in manufacturing and construction. The ONS also said that the employment rate (the proportion of people aged from 16-64 who were in work) reached a high of 74.9% during the second quarter; the highest since records began. However, real wages fell by 0.7% compared to 12 months earlier. Most economists believe that the Monetary Policy Committee (MPC) will take a cautious approach at its meeting this week and leave interest rates unchanged, possibly now until the second quarter of next year.
In the US, the Federal Reserve kept interest rates unchanged but indicated it would begin reducing its asset purchase programme, possibly from the date of its next meeting. The US economy grew by 1.9% over the first half of 2017 but the acceleration of growth from the first to second quarter has put the economy back on track, despite the below-target inflation. News of an unlikely rise in the interest rate until next year caused the dollar to weaken to a 10-month low against sterling.
Meanwhile, Dr Liam Fox, the Secretary of State for International Trade, has begun talks in Washington to sketch out details of a post-Brexit trade deal with the US, although under EU rules, the UK cannot sign a trade deal until it has left the Union.