Introduction: Stock markets are too high and set to fall, says Bank of England deputy
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Stock markets are too high, and are going to drop back at some point due to the many risks facing the global economy, one of Britain’s top central bankers has warned.
Bank of England deputy governor Sarah Breeden has issued the prediction to the BBC, at a time when the US stock market has risen to record levels despite the Middle East conflict.
She points out:
“There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point.”
This chimes with the latest assessment from the Bank’s financial policy committee, which pointed to the risks from high AI valuations, AI disruption, and the private credit market.
As she explains, the big fear is that several risk crystallise at the same time – such as an econonomic shock that leads to a rapid readjustment of AI valuations, and hurts confidence in private credit.
Breeden is clear that she’s not predicting a correction imminently… but is focused on making the UK financial system strong enough to cope.
“What we are watching for: is how might those prices fall? Will there be a sharp adjustment downwards? And if there is such an adjustment, how will that affect the economy?
I’m not saying it will happen today, tomorrow, in 12 months’ time. It’s ensuring that if it happens the system is resilient.”
The agenda
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7am BST: UK retail sales report for March
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9am BST: IFO survey of German business confidence
-
10.30am BST: Russia interest rate decision
Key events
Motor fuel sales drove up retail sales last month
Retail sales across Britain last month were boosted by the dash to fill up cars as the Iran war drove up petrol and diesel prices, according to the Office for National Statistics this morning.
The ONS has reported that retail sales in Great Britain rose by 0.7% in March (up from a fall of 0.6% in February), as the Iran war pushed motor fuel prices steadily higher.
Retail sales volumes excluding automotive fuel rose by a more modest 0.2% over the month.
Over the January-March quarter, retail sales volumes rose by 1.6%.
ONS senior statistician Hannah Finselbach explains:
“Retail sales rose in the three months to March, with commercial art galleries doing well earlier in the quarter and sales in beauty products stores rising as retailers reported launching new collections. Online shops also saw strong sales across the period.
“Motor fuel sales were up on the quarter, with retailers commenting that many motorists had been filling up their tanks in March following the start of conflict in the Middle East.”
That is slightly perplexing, though, as yesterday’s public finances showed that the amount collected in fuel duty in March was the lowest for any month since July 2023….
Trump threatens UK with ‘big tariff’ over digital services tax
The threat of a new UK-US trade war has reared up again, after Donald Trump has threatened to impose tariffs on the UK if it does not drop its digital services tax on US social media firms.
Speaking to reporters from the Oval Office on Thursday, the US president said:
“We’ve been looking at it and we can meet that very easily by just putting a big tariff on the UK, so they better be careful.
“If they don’t drop the tax, we’ll probably put a big tariff on the UK.”
The digital services tax, which was introduced in 2020, imposes a 2% levy on the revenues of several major US tech companies.
The Trump administration has been pushing back against it; in December, the US paused its promised multi-billion-pound investment into British tech in protest that trade barriers hadn’t been lowered.
Introduction: Stock markets are too high and set to fall, says Bank of England deputy
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Stock markets are too high, and are going to drop back at some point due to the many risks facing the global economy, one of Britain’s top central bankers has warned.
Bank of England deputy governor Sarah Breeden has issued the prediction to the BBC, at a time when the US stock market has risen to record levels despite the Middle East conflict.
She points out:
“There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point.”
This chimes with the latest assessment from the Bank’s financial policy committee, which pointed to the risks from high AI valuations, AI disruption, and the private credit market.
As she explains, the big fear is that several risk crystallise at the same time – such as an econonomic shock that leads to a rapid readjustment of AI valuations, and hurts confidence in private credit.
Breeden is clear that she’s not predicting a correction imminently… but is focused on making the UK financial system strong enough to cope.
“What we are watching for: is how might those prices fall? Will there be a sharp adjustment downwards? And if there is such an adjustment, how will that affect the economy?
I’m not saying it will happen today, tomorrow, in 12 months’ time. It’s ensuring that if it happens the system is resilient.”
The agenda
-
7am BST: UK retail sales report for March
-
9am BST: IFO survey of German business confidence
-
10.30am BST: Russia interest rate decision