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Global share markets slump as US raises interest rates

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The US Federal Reserve pressed ahead with an interest rate rise on Wednesday despite pressure from Donald Trump to hold off to avoid damaging the economy. The rate rose by 0.25% to a range of 2.25%-2.5%, but said that it was likely to raise rates only twice in 2019, as opposed to previous guidance of three rate hikes. Economic growth in the US has been revised down for 2019 from 2.5% to 2.3%.

The Fed cited strong economic growth, a tight labour market and lack of inflationary pressures for the rate increase.

Many observers are worried that the Fed is raising rates too quickly against a softer economic backdrop, which in turn will lead to sharper than intended economic slowdown or possibly a recession, which would have knock-on effects for global growth – this has already shown signs of slowing.  

UK house prices fell in December, leading to the biggest drop over a two month period since 2012, according to property group Rightmove. Prices fell by 1.5% in December in addition to a 1.7% drop in November. It says the falls have been caused by vendors dropping prices to attract buyers despite the traditional Christmas slowdown, stretched affordability and political uncertainty undermining confidence. Buyers, for their part, are demanding bigger discounts. Analysts said that Brexit uncertainties were sure to be playing a part and many people would be waiting until after the Brexit outlook was more clear before committing to buying or selling, exacerbating the current shortage of properties on the market.

UK inflation fell to its lowest level in more than 18 months in November,  pulled down by the falling cost of fuel. The Office for National Statistics (ONS) said that the consumer prices index rose by an annualised rate of 2.2% in November, down from 2.3% in October and the lowest reading since March 2017. Core inflation, which strips out volatile energy prices, eased to 1.8% from 1.9%.

The Bank of England left UK interest rates unchanged on Thursday.

The UK’s manufacturing sector produced an encouraging performance at the end of the year, with growth in exports helping to overcome reduced domestic demand. The Industrial Trends Survey for December, released by the Confederation of British Industry (CBI) said 28% of manufacturers had reported order books as above normal, and 20% below normal, giving a balance of +8%. That was below November’s figure of +10% but ahead of the long-term average of -13% and analysts’ forecasts of around +6%. Output expanded in 15 of the 17 sub-sectors, with the biggest growth reported by food, drink and tobacco; mechanical engineering; and chemicals. Orders for export are at their strongest since the beginning of the year, with 27% of firms saying there were higher than normal and 13% stating they were below normal.

Consumer confidence fell to a five-year low in the UK in December, according to the closely watched GfK survey.

Its index fell to -14 this month from -13 in November, with three of the five measures used to calculate the overall scored down, and two up. Client strategy director Joe Staton said: "At -14 this month, UK consumers are ending 2018 on a pessimistic note with Christmas cheer in short supply. We are five points lower than this year’s opening score in January and were no higher than -7 this summer.”

 

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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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