Gloomy markets face more damage

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A STREAM of gloomy economic news next week threatens to inflict further damage on financial markets, where confidence of an impending recovery is already fragile. It is likely to depress the stock market, which was showing renewed weakness by the end of last week on expectations of no cut in interest rates for the foreseeable future.

High street spending figures for June, due on Wednesday, may show the economy is slipping further into recession. Setbacks to consumer confidence and gloomy anecdotal evidence from retailers suggest that the retail sales data and tomorrow's distributive trades survey from the Confederation of British Industry may prove disappointing.

City economists expect retail sales volume to have risen by 0.1 per cent in June, following a 0.3 per cent rise in the previous month. Sales appear to have been particularly weak in areas connected with the housing market, such as do-it-yourself and electrical goods.

Money supply figures for June, due tomorrow, are also expected to suggest weak high-street activity. Annual growth in the narrow measure of money supply M0 - often seen as an indicator of retail spending - is expected to have fallen to 1.8 per cent in the year to June, from 2.5 per cent in the previous month.

The figures will confirm that there is still no sign of recovery in consumer confidence to lead the economy out of recession. That is likely to reinforce the deepening pessimism in the stock market, which drew litle comfort from the fact that interest rates did not rise last week as had been feared. Despite the Bundesbank's decision not to push up its key Lombard rate, which would have triggered a rise in UK interest rates, there are still worries that German rates may rise later this year.

Shares fell sharply on Friday, with the FTSE 100 Share Index down 51.5 points to 2,431.9. Reflecting concern over the prospect of continuing high interest rates, sterling fell 1.53 pfennigs to DM2.8487, while money market interest rates edged up.

Weakening share prices threw a shadow over the pounds 3bn issue of Wellcome shares, which closes for institutional investors this Friday. Many UK institutions said last week that they would be applying for shares, and most said they were looking for a price between 830p and 850p. Shares in Wellcome Foundation, headed by John Robb, closed last week at 870p.

Robert Fleming, the merchant bank organising the issue, said that demand was slower in the US, where 25 per cent of the offer is being sold, but was beginning to pick up. Roger Gibbs, chairman of the Wellcome Trust which is selling the shares, said there was no chance of the offer being pulled.

Analysts said that there was no real reason to hope for an improvement in market sentiment as a result of last week's events or this week's statistics.

Further bad news is likely to come with the trade figures for June this week, which are expected to show a slight widening in the visible trade deficit to pounds 1bn, from pounds 845m in May. Meanwhile, building society commitments are expected to have fallen from pounds 3.2bn to pounds 2.9bn in June.

(Photograph omitted)

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