As the UK’s economic crisis rages on, London has lost its position as the most valuable European stock market. In its place, Paris has taken the top spot: its equities are worth approximately $2.823 trillion as opposed to London’s $2.821 trillion, according to Bloomberg.
Domestic-focused UK shares have dropped significantly this year in light of the country’s economic crisis, and the value of the British pound is down 13% to the U.S. dollar as a likely recession looms. In contrast, the euro has lost only 9%, and French luxury good makers such as Gucci have enjoyed a surge in sales and recent boost in demand thanks to the easing of China’s COVID-19 restrictions.
The UK’s current economic crisis has caused the cost of living to soar in the country. The country's economic performance has suffered since the decision to leave the EU in 2016, when the market cap gap between London and Paris first began narrowing from around $1.5 trillion.
The current crisis has been brewing since the financial impact of the COVID-19 pandemic and Russia’s invasion of Ukraine began to be felt, but grew massively following former prime minister Liz Truss’ September mini-budget. Between July and September, the economy shrunk by 0.2% and the Bank of England warned of the likelihood of the longest recession since records began.
Truss’ proposals to significantly cut taxes and increase borrowing in order to face the country’s economic challenges were faced with exceptional backlash, particularly due to the fact that they were likely to significantly increase inflation. Investors rejected her proposals and the pound crashed to a record low.
Furthermore, bond prices fell causing yield prices to skyrocket, making mortgage rates increase and some pension funds close. According to the Resolution Foundation think tank, Truss’ mini-budget is estimated to have cost the UK economy around £30 billion. Politically, it also sent the Conservative Party into turmoil and led Truss to resign as prime minister after a matter of weeks in the role.
Now, London’s FTSE 250 share index has slumped by nearly 17% over the last year, as small and medium-sized businesses struggle to handle rising costs and consumers continue to cut back on spending in response to the cost of living crisis. Indeed, as energy and food prices continue to rise, the threat of recession and a difficult winter looms over the UK.
This change is the first time Paris has overtaken London since 2003, when records began.
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