Weekly Round Up
UK markets retreated this week with the FTSE 100 Index falling over 1% during the week.
Stocks were weighed down by concerns about tax rises, the state of the UK’s economic growth trajectory and the pandemic. Boris Johnson passed a new tax rate hike to fund health and social care, that included a 1.25% increase in the national insurance tax for both employers and employees. He also added an extra 1.25% to the dividend tax.
Investors were concerned that this tax rise would hit consumer spending and activity in areas such as the housing market. The Bank of England’s Governor, Andrew Bailey said the central bank would probably be forced to raise interest rates to combat inflationary pressures over the next two to three years, even as Britain’s recovery from the pandemic slows.
The European Central Bank said on Thursday it had ‘a moderately lower pace’ on its pandemic emergency purchase programme. However, the bank’s president, Christine Lagarde reassured bond investors stating, ‘the lady isn’t tapering’, paving the way for a looser monetary policy for longer.
In the US, the Dow Jones Industrial Average and the S&P 500 both fell on lingering concerns that the spread of the Delta variant will have a significant impact on the economic recovery.
Renewed mask mandates, travel restrictions, event cancellations, and delayed office reopenings are weighing on the growth. Last week’s Nonfarm Payrolls disappointed with the US economy adding 235,000 jobs in August 2021, the lowest in seven months, well below forecasts of 750,000. The surge in Covid-19 infections may have discouraged companies from hiring and workers actively looking for a job. Investors are now increasingly betting that the Fed’s tapering plans may be delayed due to the labour market recovery slowing down substantially.
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