During the last few months of 2021, the British economy appeared to be improving and continuing its steady incremental rises in gross domestic product (GDP), however this occured in parallel to a series of dramatic price increases which have dominated the news and the reality of everyday life for many months, and are still ongoing currently.
The trajectory of increasing GDP at a time during which debt and inflation have also been increasing, but doing so in a more rapid manner, had to change at some point, and February’s figures, released this week, have demonstrated exactly that.
Economists often use the word ‘staglflation’ to define periods in which slow economic growth and relatively high unemployment accompanied by rising prices occur, and February 2022 appears to have demonstrated this clearly.
Whilst GDP for February 2022 did not decrease compared to January, it only grew by 0.1% which is a slow month-on-month growth.
In January, GDP in the United Kingdom rose by 0.8R% over December, and therefore February’s figures show the realities of the cost of living crisis which is in the forefront of many minds.
Near-term challenges to the overall economic outlook have increased since January, with the growing cost-of-living crunch set to weigh on growth.
In congruence with this, the FTSE 100, which is the index tracking the 100 most prestigious blue-chip companies on the London Stock Exchange opened today down by 0.5% over its previous close, largely as a result of new data from the Office of National Statistics, a government department in the United Kingdom, which shows that mining companies and consumer-related stocks had fallen out of favour during February.
The FTSE 100 has been reasonably volatile over the past two years, and its landmark growth was experienced toward the end of last year when it began to rise above the 7500 mark. It now stands at over 7640, which is still very high when looking at historical data, as the big pharmaceutical companies have performed very strongly, as have mining giants and materials manufacturers since the middle of last year.
The small drop in performance in February for the FTSE 100 index therefore shows that, on a macro basis, the economy in the United Kingdom has been viewed in a less optimistic manner than it had been for the past six months, but by no means is an FTSE 100 index which continues to perform at around the 7640 mark anything less than very buoyant.
These are times of relatively high volatility, and the FTSE 100 is reacting to overall economic data. The issue here is whether the drop by 0.5% today is really based on the data from the Office of National Statistics, or if it is finally a reaction by investors to the pessimistic outlook for the overall British economy which is mired in inflation, spiralling living costs and three interest rate rises this year.
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