Where is the UK economy expected to go?
UK economy already was in a critical condition, and now with Prime Minister Boris Johnson's resignation, the world's fifth-biggest economy will need more reasonable factors to grow.
According to Office for National Statistics Office for National Statistics, UK inflation is at a 40-year high of 9.1%, putting more and more pressure on the counties economy, especially knowing that the BoE thinks it will top 11% later this year. At the same time, British Pound is experiencing near two-year lows against the dollar. With mentioned data and current pressures, the Bank of England is at a crossroads between raising interest rates or supporting the weakening economy.
Now, on top of everything, Prime Minister Boris Johnson's resignation makes the situation even more complicated. Lately, in April International Monetary Fund said that the UK economy will face slower economic growth compared to its rivals, which now seems more realistic with the current political chaos.
With ultra-supporting policies that the UK government had during the pandemic, Britain's debt jumped above 2 trillion pounds, and Britain's budget watchdog said on Thursday that it could increase by almost 320% of GDP in 50 years if future governments do not tighten fiscal policy. Therefore, most probably, regardless of who will become the prime minister, BoE has nothing to do but go after more tightening policies and increase the rates to prevent any future worse cases. Therefore, in the August meeting, BoE will increase the rates for the sixth meeting in a row, which is happening for the first time in 25 years.
Considering the mentioned situation, we expect that UK Footsie (FTSE100) can still be under pressure before it starts rising. From the technical point of view also, FTSE100 moves in a clear downtrend, especially if it falls under 7,000.
