As of writing, the British FTSE 100 index traded half a percent weaker on Monday, falling toward the major support level for bulls.
GBP craters, causes havoc in markets
Fears that the so-called mini-budget unveiled on Friday will put even more strain on an already highly leveraged economy caused sterling to suffer. The GBP/USD pair crashed to new all-time lows near 1.05, before recovering slightly.
The top-flight FTSE index often benefits from a lower pound since almost 70% of its participants source their earnings from abroad.
The Bank of England (BoE) said in a statement released on Monday that they are actively watching financial market developments in light of the large repricing of financial assets.
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The BoE also expressed its appreciation for the government’s dedication to the Office for Budget Responsibility’s function and to sustainable economic growth.
“The role of monetary policy is to ensure that demand does not get ahead of supply in a way that leads to more inflation over the medium term,” the BoE said. “As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the government’s announcements, and the fall in sterling.”
House prices not coming down
Despite the cost-of-living crisis and interest rates at 14-year highs, house prices rose in September, according to the most recent Rightmove survey, which investors were also considering.
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In September, the average asking price of a house going on the market was £367,760, up 0.7% from August and 8.7% from the previous year, according to the most recent Rightmove House Price Index.
The increase was broadly in line with the 0.6% growth rate witnessed in September on average during the previous ten years.
The cost of borrowing has reached its highest level since 2008 as a result of the Bank of England’s seventh straight increase in interest rates last week. For the first time since November 2012, Rightmove reports that the typical monthly mortgage payment for first-time buyers who put down a 10% deposit has risen to £1,057 per month, or 40% of the average gross earnings.
At 9.9%, inflation is still around 40-year highs.
But Tim Bannister, director of property science at Rightmove, said: “The end of the summer break and the start of the new school term is usually a time when we see renewed focus from buyers, as those with plans to move to see an autumn window of opportunity ahead.
Support at 7,000 GBP
If that level is taken out, we might see another leg lower, targeting 6,800 GBP. Alternatively, any rallies should be stopped near 7,100 GBP by bears.