As the UK faces a recession, the depth of it will depend on the timing and extent of the spending cuts and tax rises which the Chancellor announces on Thursday as he scrabbles to plug a ‘black hole’ in public finances of over £50bn, says Rupert Thompson, chief economist at Kingswood.
He said: “UK GDP contracted a larger than expected 0.6 per cent in September, albeit partly due to the extra bank holiday, and fell 0.2 per cent over the third quarter. According to the Bank of England’s forecast, this will mark the start of a recession which will last until at least the end of next year.”
"UK equities were up 1 per cent on the week, a little less than the gain in global equities which was reduced to 2.1 per cent in sterling terms by a rebound in the pound. Sterling rose as much as 4.4 per cent against the dollar to $1.18 with the move all driven by a fall in the US currency on the back of the revival in risk appetite."
Meanwhile, last week UK large cap underperformed small and mid cap substantially.
Thompson added: “The FTSE 100 was unchanged while the FTSE 250 gained as much as 7.7 per cent. The divergence was down both to the stronger pound, which hits large cap due to their bigger overseas exposure, and also the rebound in risk appetite which allowed small and mid-cap to shrug off the depressing domestic economic news.”