European stocks recovered some of yesterday's losses on Tuesday in London, as new data from the Office for National Statistics showed the UK's public sector borrowing had seen its second highest August on record. OECD forecasts also gave a potentially worrying read on inflation.
Public sector net borrowing (excluding public sector banks, PSNB ex) was estimated to have been £20.5bn ($28bn) in August 2021, £5.5bn less than in August 2020.
Meanwhile, central government receipts in August 2021 were estimated to have been £61.2bn, £5.3bn more than in August 2020. Central government bodies spent £79.6bn in August 2021, £1bn less than in August 2020.
"We are determined to get our public finances back on track — that’s why we have set out the focussed and responsible steps we are taking to keep debt under control," said UK chancellor Rishi Sunak.
Stocks rose even as new projections from the Organisation for Economic Co-operation and Development (OECD) said that inflation will continue to rise over the next two years. The OECD expects price increases to be significantly higher in 2021 and in 2022 than it had previously forecast for most G20 countries.
“The speed of the recovery has increased inflationary pressures, quickly pushing up prices to where we expected them to be before the pandemic,” it said.
The rebound in the US and Europe comes following a mixed day of trade in Asia. The Hang Seng (^HSI) finished the day flat following a day of losses. Meanwhile Japan's Nikkei (^N225) declined 2.2% and the SSE Composite (000001.SS) rose 0.2%.
"The crisis at Evergrande and in the Chinese real estate sector was the catalyst most people were talking about, but truth be told, the market rout we’re seeing is reflecting a wider set of risks than just Chinese property, and comes after increasing questions have been asked about whether current valuations could still be justified, with talk of a potential correction picking up," said Deutsche Bank analysts in a research note.
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