UK markets pulled back this week, with the FTSE 100 Index falling by 0.82% to trade at 7,815 points. The UK government borrowed £139.2 billion in the 2022-23 financial year, significantly less than official forecasts, opening the way to possible tax cuts later in the year.
The borrowing figure, which was published by the Office for National Statistics on Tuesday, was £13.2 billion less than forecast last month, largely because of lower than expected public spending. The figures show the Government has reduced the country’s fiscal deficit from a peacetime record of 15% of GDP in 2020-21, when the pandemic forced huge support for families and companies, to 5.5% in 2022-23.
However, they also reveal than government revenues were £4.1 billion lower than the Office for Budget Responsibility forecast for 2022-2023.
The number of working days lost to sickness in the UK hit a record high last year, according to official data published on Wednesday that will reinforce fears over the impact of ill health on the economy. The rate of sickness absence, or the percentage of working hours lost because of sickness or injury, rose to 2.6% in 2022, up from 2.2% in 2021 and the highest level since 2004.
The number of people who say they are not working or job-seeking because of a long-term health condition has also increased by half a million since 2019. The Bank of England’s Monetary Policy Committee said labour shortages, and the accompanying pressures on wages, risks making high inflation more persistent in the UK than elsewhere.
Commodity markets
In the commodity markets, Brent Crude futures traded around $78 per barrel on Friday and are set for a weekly decline, as recession fears and renewed concerns about the banking sector outweighed falling US inventories and the prospect of tighter global supplies.
The international oil benchmark has also reversed all the gains made earlier this month when OPEC+ announced a surprise production cut. Investors worried about tightening financial conditions that could reduce global growth and energy demand, with the Federal Reserve and European Central Bank set to raise interest rates further next month.
The latest Energy Information Administration report showed US crude inventories dropped 5.054 million barrels last week, far exceeding expectations of a 1.486 million barrel decline. Elsewhere, more output cuts planned by OPEC+ from May could constrict global markets further.
Gold traded around $1,980 an ounce on Friday and is on track for a monthly gain, amid a pullback in the dollar and concerns about heightened global economic uncertainties drove investors to the safe-haven asset.
US equities
US equity futures fell on Friday, after rallying in the previous session, as upbeat earnings took over concerns about a Federal Reserve induced economic slowdown.
In Thursday’s regular trading session The Dow Jones Industrial Average rose 1.57%, while the S&P 500 Index gained 2.14% and the Nasdaq Composite climbed 2.43%. US economic growth slowed sharply in the first quarter of 2023, despite strong consumer spending, as the Federal Reserve ploughed ahead with its historic monetary tightening campaign.
The US economy grew 1.1% on an annualised basis between January and March, according to preliminary data released by the Commerce Department on Thursday. The figures marked an abrupt deceleration from the 2.6% pace registered in the final three months of 2022 and came in well below economists’ expectations of a 2% increase.
The slowdown in US growth shows the Federal Reserve’s year-long battle against rampant inflation is beginning to take effect, as rates have been lifted from near zero to just under 5% in the past year, the fastest increase in decades. Despite this, inflation-adjusted consumer spending rose at a 3.7% annual rate, up from 1% in the last quarter of 2022, raising concerns that it will fuel more rate hikes.
Consumers have remained resilient and are expected to use excess savings and purchasing power to make the economic contraction short and shallow. A strong jobs market, with an unemployment rate at 3.5%, is also expected to underpin growth. The US trade deficit narrowed sharply and unexpectedly last month. According to the Department of Commerce, in seasonally adjusted terms, the visible trade deficit fell by 8.1% month-on-month to reach $84.6billion, compared to predictions in a shortfall of -$90 billion.
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