Home builders Fall and apprehension grips Financial markets

A sense of apprehension is once again gripping the financial markets, with growing concern that by tackling inflation, central banks risk seriously weakening economies.

After further falls on Wall Street, Asian markets fell and European indices also opened lower.

The FTSE 100 slipped 1.8% with very few risers. As worries about a global slowdown grew, oil plunged amid weaker demand expectations, with Brent Crude falling slightly below $116 a barrel.

But it remains at a stunning level, up 51% since the start of the year due to intense supply pressures.

OPEC countries are currently meeting to decide on the way forward for production targets, but early indications are that the prospects that they will pump significantly more oil in the future are dim.

The fragility of the UK economy was brought to light with final GDP data for the first quarter, showing that although output rose 0.8%, real household disposable income fell 0.2% , a bigger drop than expected.

With consumers having even less purchasing power than initially thought before the steep rise in inflation in recent months, this adds to concerns about their financial resilience.

Lockdown economies are rapidly evaporating and with inflation expected to hit 11% in the fall and interest rates rising, there are likely to be fewer big spenders in the months ahead.

There are tentative signs that homebuyers are already balking at the scorching housing market, with home price increases slowing slightly.

But worries about rising rates and the possibility of being locked out of cheaper deals in the future still seem to be fueling this race for action at the moment.

Investors, however, fear the outlook for a potential price drop next year, which could affect demand for new homes.

Homebuilders Persimmon and Barratt Developments fell around 4% at the start of the year, while Bellway fell 3%, adding to steep declines since the start of the year.

Susannah Streeter

Susannah Streeter, Senior Investment and Market Analyst, Hargreaves Lansdown.


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