A recent report suggests that the FTSE100 may be set to take a significant downturn as inflation pressures continue to rise. This is driven by higher oil and gas prices, weakness in the American economy and doubts over the credibility of the UK’s vote to leave the European Union. The index has already suffered a number of major losses over the last twelve months.
The key area of concern for traders looking to trade in UK markets is the metal commodities space. There are many worries over the global economy and the effects it will have on the business community here. Globalisation is blamed on a number of factors including the slowing down of China and the emerging Asia-Pacific economies. These have resulted in a reduction in European demand for raw materials such as oil and gas. The result has been higher prices across the board and commodity markets have reacted by moving lower to retain or gain market share.
An increasing trend in the price of oil and gas is being witnessed across the globe with the United States of America being the main exporter of the commodity. As the world’s largest oil producer China has cut back its domestic production. It is widely believed that China will seek to strengthen its hold on the multi-party energy trade which it currently has. As a result the FTSE100 index has taken a heavy hit and if further falls it will have a serious negative impact on the economy here in the UK.
It is not just oil and gas that are being affected. Food prices have also rocketed over the past year. As demand across the board meets supply, inflation is likely to rise. In addition, deflation is widely expected to continue to mean that the effective price of goods and services will fall over time. Deflationary pressures are expected to continue, particularly in the United States, where the low interest rate environment has helped to keep inflation low.
The question many people across the world now are wondering is how long will this global economic slowdown last. The global economic slowdown is a reality and it will not be an isolated phenomenon. Some are predicting that the downturn will continue until 2021. Global oil prices have recently reached a five-year low, which will only accentuate the concerns over deflation.
A further worry is that the high price of oil is forcing the United Kingdom to import large amounts of crude from the United States. Britain is one of the largest users of oil in the world. If the United Kingdom was to stop its oil imports then it would face dire consequences as the country depends heavily on the revenue generated from oil exports. The consequences could be felt in the form of a crippling recession as oil supplies are likely to fall even further. On top of that, the European Central Bank has indicated that it may increase interest rates from their current level of 2% in order to stimulate the global economy.