One of the latest indicators out there is the FTSE100 index, which has been on a steady decline in recent weeks. This comes at a time when markets are beginning to fear that the Bank of England may cut rates again, causing an increase in prices across the board. With many companies already having reduced their operations or closing down completely in an effort to conserve funds, this could mean trouble for the struggling economy. This is why The United Kingdom Government has issued a statement urging businesses to keep operating as usual through any monetary increase in the economy.
So what exactly is behind the recent decline of the FTSE100 index? There are a number of factors at work, with one of them being the downward pressure on manufacturing costs from China. While other economies have also tightened their belts during times of economic downturn, China’s government has been cutting down on the number of state owned enterprises and has allowed the private sector to more freely compete in the industry. The result has been a sharp reduction in the price of goods by the company that controls the FTSE100, and this effect has been felt in all of the major economic indicators, particularly consumer spending and industrial production.
A key question is why this company would be experiencing such a deflation-like effect across the board. After all, the cost of living in the UK is increasing. Additionally, British companies have been forced to contend with increased regulation over their safety practices following the recent tragedies in the oil industry. All of this has had a negative impact on the company’s overall profits and as a result, their share price has fallen. If this trend continues, then we can expect that the FTSE100 will be falling even further before it begins to recover.
Now, while this is a worry for investors, it is not the only one. Concerns have also arisen over the fact that the UK government has been attempting to stimulate the economy by offering subsidies to certain industries in order to increase demand and make businesses more profitable. The effect has been less of an inflation rise and more of a deflation effect, meaning that there is a worry about the overall health of the economy.
However, a different index of the FTSE100 has shown that businesses are feeling far less worried about the state of the economy, with prices rising just 1.4 percent between April and June. This was despite the ongoing uncertainty caused by the outcome of the EU Referendum. One leading indicator of consumer sentiment has shown a marked increase in consumer spending, which is expected to boost the economy in the months ahead. It is therefore easy to see why FTSE100 Index prices have dropped and why so many traders are concerned about the prospects for the market.
So, while there is certainly a lot of scepticism surrounding the reliability of the index, there are still a number of concerns that should be considered. Despite the Bank of England having issued warnings about the risks associated with investing in the index due to the uncertainty caused by the Referendum result, there is no real evidence to suggest that consumers are losing confidence in the markets. Instead, there is likely to be a gradual increase in FTSE100 Index prices as more consumers realise that there is little risk involved in trading in the financial markets and that inflation will remain on hold for the time being.