Greg Secker – U.K. Market update brought to you by Traders University

UK Stock Market Report 18th August 2010

The FTSE 100 rose +74.45 points or +1.41% on Tuesday to 5350.55

George Osborne yesterday said he would not shy away from ambitious plans to slash public spending, insisting the economy would fall into a tailspin unless Britain’s yawning deficit is dealt with. The chancellor was attempting to take on critics – both in the Labour party and in the coalition government – who say the austerity measures could weigh on the economy’s growth prospects. And he called on those who oppose his plans for the biggest fiscal tightening in a generation to offer an alternative instead of sniping from the sidelines.

The Labour Party, which is in the process of electing a new leader, has failed to present its own plan for getting to grips with the deficit. Some leadership candidates back former chancellor Alistair Darling’s plan to halve the deficit in four years – a strategy that would have meant huge spending cuts – while others say the main focus should be on shoring up the anaemic economy. Despite his insistence that sharp deficit reduction is the only credible course of action, Osborne warned that he agreed with Bank of England governor Mervyn King’s prediction the recovery would be “choppy”.

He said it was unrealistic to expect a “smooth ride” considering the scale of the economic crisis. The chancellor has staked his reputation on maintaining the country’s triple-A credit rating, but yesterday Moody’s warned Britain was still at risk of downgrade.In separate matters, rising food prices offset a drop in the cost of fuel in July but annual inflation remained stubbornly above 3 per cent in July.

The strong inflation figures forced Bank of England governor Mervyn King to pen his second letter of explanation to chancellor George Osborne and to admit that the Monetary Policy Committee (MPC) had been surprised by the recent strength of inflation.Official figures revealed that inflation eased slightly to 3.1 per cent thanks to expected lower petrol prices and a sharp slowdown in the inflation rate for second-hand cars. But with food prices surging 0.7 per cent in July – the biggest monthly jump for two years according to the Office for National Statistics (ONS) – annual CPI inflation rate stayed more than one per cent above the Bank’s two per cent target.

Due for release today is the GBP MPC Meeting Minutes