After the crash, analysts warn of a long hard summer ahead

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The Independent Online

Top financial analysts are warning that, following last week's crash in the City, much worse could be to come.

Top financial analysts are warning that, following last week's crash in the City, much worse could be to come.

Some believe that the combination of economic and corporate worries that produced the collapse are set to recur again and again over the summer – each time pulling stocks down to record lows.

This week will provide yet another test for the City, as it hears key data on the economy. Particularly critical will be news about consumer spending, inflation and the breakdown of voting at the Bank of England's last meeting on interest rates. With the market in its current mood of despair, a disappointment on any one of these figures could send things spiralling south.

Added to the City's woes is the strong likelihood that Wall Street is also facing a long hard summer. The next few weeks will be especially tough as the US round of second-quarter company reporting gets underway. Several blue-chip companies have warned investors to prepare for disappointment, and others are almost certain to follow.

The most bearish analysts believe last week could be a template until September.

At one rare stage of trading on Friday, not a single share in the FTSE 100 index was rising, and across the Square Mile dealing floor screens turned completely red. As the benchmark index fell 141 points, many traders decided it was safer to sell out of their positions and give up for the day. Even the second-tier FTSE 250 – a traditionally far more stable index – took a 168-point dive.

The London market has fallen for four weeks in a row, and has shed all of the gains made over the first five months of this year. The market is now less than 200 points away from the levels it plumbed after 11 September.

There were three major factors at work behind last week's rout, of which one was a litany of dreadful company news. The UK's biggest sectors – oil, banks, drugs and telecoms – all fell as one.

But the state of the global economy was the most critical consideration. The latest batch of US economic data and company earnings news has delivered a series of blows to the possibility of a recovery.

Analysts are predicting that if house prices slow, consumer confidence will also collapse. Given that retail is one of the few areas still booming, any threat is taken by the markets as dire news.