The FTSE 100 (^FTSE) stumbled on Thursday as Michael Saunders, one of eight members of the Bank of England's (BoE) monetary policy committee, warned that the bank could could step in to curb rising inflation.
Saunders was the second MPC member in the space of a day to confirm that he was considering voting to tighten policy.
“In my view, if activity and inflation indicators remain in line with recent trends and downside risks to growth and inflation do not rise significantly (and these conditions are important), then it may become appropriate fairly soon to withdraw some of the current monetary stimulus in order to return inflation to the 2% target on a sustained basis,” he said.
“In this case, options might include curtailing the current asset purchase programme – ending it in the next month or two and before the full £150bn has been purchased – and/or further monetary policy action next year.”
His comments came after deputy governor Dave Ramsden said on Wednesday that inflation could hit 4% this year, and that the BoE may need to reverse its monetary stimulus sooner than he had expected.
Watch: What is inflation and why is it important?
It came as UK unemployment for the three months to May climbed to 4.8%, up from 4.7% a month ago.
However, this was still lower than in the previous quarter thanks to the easing of coronavirus restrictions across the country.
The UK employment rate was estimated at 74.8%, 1.8 percentage points lower than before the pandemic, but 0.1 percentage points higher than the previous quarter.
“As we approach the final stages of reopening the economy, I look forward to seeing more people back at work and the economy continuing to rebound,” said chancellor Rishi Sunak.
“We are bouncing back – the number of employees on payrolls is at its highest level since last April and the number of people on furlough halved in the three months to May.”
Job vacancies in Britain rose to a record 962,000 in June, up 7% from the previous month, as companies continue to struggle to hire staff.
The number of employees on company books also climbed by 356,000, the Office for National Statistics (ONS) said. It was the largest monthly increase since the pandemic began, lifting the total number of payroll employees to nearly 28.9 million.
“The rise in vacancies confirms the ongoing struggle to hire staff,” said Suren Thiru, head of economics at the British Chambers of Commerce.
“The recruitment difficulties faced by firms go well beyond temporary bottlenecks. Staff shortages may drag on any recovery.”
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On Wednesday, the S&P 500 eked out a 0.1% gain after recovering from a fall early on. The Nasdaq composite slipped 0.2% on the day despite gains by several big tech companies including Apple (AAPL).
Comments from Federal Reserve chair Jerome Powell in his congressional testimony on Wednesday caused Treasuries to end their three-day selloff, with yields moving lower throughout the day.
Powell indicated that the Federal Open Market Committee (FOMC) views the US economy as “still a way off” from the standard of having made the “substantial further progress” in order to cut down asset purchases. He also made clear that the FOMC will be discussing tapering at the next meeting in two weeks, and that the Fed will give the market ample warning before adjusting asset purchases.
The Seoul and Taipei bourses also posted gains overnight while Singapore and Sydney fell.
It came as China's economic growth slowed in the second quarter, according to official data on Thursday.
The world's second-largest economy expanded 7.9% in the period from April to June, the National Bureau of Statistics said, a steep drop after its rapid recovery from last year's slump.
“The jury remains out on how well the Chinese economy is actually doing, with retail sales showing signs of gaining traction, although all of this year’s economic numbers have to be set in the context of an enormous skew, due to the shock of the pandemic lockdowns a year ago,” said Michael Hewson of CMC Markets.
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