31st Jan 2023 06:52
(Alliance News) - Stocks in London are set to open lower on Tuesday, following data from the International Monetary Fund warning that UK economy will shrink this year, despite growth elsewhere.
IG says futures indicate the FTSE 100 index will open down 27.27 points, or 0.4%, at 7,757.6 on Tuesday.
The FTSE 100 index closed up 19.72 points, or 0.3% at 7,784.87 on Monday, boosted by strong performances from retailers J Sainsbury and B&M European Value Retail which closed up 4.1% and 1.9%, respectively.
Global economic growth is set to be higher than expected this year, the IMF said, raising its forecast on surprisingly strong consumption and investment, while China's lifting of zero-Covid restrictions provides another boost.
World growth has been bogged down by fallout from Russia's invasion of Ukraine last year, economic downturns and efforts to rein in spiralling costs of living. Against this backdrop, the IMF expects the global economy to expand 2.9% this year, slowing from 2022 to a rate that remains weak by historical standards.
However, the UK's economy will slam into reverse this year as the cost-of-living crisis hits households hard and will see the worst performance of all the advanced nations, the IMF warned.
In its latest World Economic Outlook update, the IMF downgraded its UK gross domestic product forecast once again, predicting a contraction of 0.6% against the 0.3% growth pencilled in last October as Britain looks set to suffer more than most from soaring inflation and higher interest rates.
But it nudged up its outlook for UK growth in 2024 to 0.9%, up from the 0.6% expansion previously forecast. The grim outlook for the year ahead puts the UK far behind its counterparts in the G7 group of advanced nations and the only country – across advanced and emerging economies – expected by the IMF to suffer a year of declining GDP.
Sterling was quoted at USD1.2343 early Tuesday, lower than USD1.2375 at the London equities close on Monday.
However, Chris Turner at ING said that, depending on the state of the dollar after the Federal Open Market Committee meeting, the pound "could be pressing 1.2500 by the end of the week."
The euro traded at USD1.0839 early Tuesday, lower than USD1.0867 late Monday. Against the yen, the dollar was quoted at JPY130.19, down from JPY130.35.
Wall Street ended lower on Monday, as investors looked nervously ahead to the start of the US Federal Reserve's two-day monetary policy meeting on Tuesday. The Fed's interest rate decision will be announced on Wednesday during US market hours. The Dow Jones Industrial Average ended down 0.8% on Monday, the S&P 500 down 1.3% and the Nasdaq Composite down 2.0%.
Asian equities followed New York into the red, despite new data showing China's factory activity returned to growth.
In Tokyo on Tuesday, the Nikkei 225 index was down 0.4%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 1.6%. The S&P/ASX 200 in Sydney closed down 0.1%.
China's factory activity expanded in January after months of contraction, official data showed, as the world's second-largest economy stirs back to life after Beijing ended strict Covid curbs.
Pandemic prevention measures have "entered a new stage" that is allowing "a gradual return" to normal life, National Bureau of Statistics statistician Zhao Qinghe said in a statement.
The official manufacturing purchasing managers' index rose to 50.1 points this month from 47.0 in December – the first time since September the index has been above the 50 point mark that indicates growth.
The non-manufacturing PMI, which includes the services and construction sector, rose to 54.4 in January, well above the 52 points forecast by economists surveyed by Bloomberg.
Gold was quoted at USD1,915.16 an ounce early Tuesday in London, lower than USD1,923.73 on Monday. Brent oil was trading at USD84.08 a barrel early Tuesday, down from USD85.93 late Monday.
In Tuesday's UK corporate calendar, drinks maker AG Barr and pet supplies retailer Pets at Home will release trading statements.
In the economic calendar, there will be a flash GDP print for the EU at 1000 GMT.
After the US Fed's announcement on Wednesday, the Bank of England and the European Central Bank will follow with policy decisions on Thursday.
By Sophie Rose, Alliance News reporter
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