Investors could have been forgiven for thinking they were in a bad dream, last week, as all hell appeared to break loose on the streets and in the markets.
 
News of a downgrade of the US credit rating by Standard & Poor’s heralded a poor start for the week. Indeed, rioting across the UK seemed to reflect accurately what was happening in stock markets across the globe.
 
As prime minister David Cameron flew back from his Tuscan holiday to tackle the riots, volatility reigned in the stock markets.
 
Mervyn King, governor of the Bank of England, revised down his growth forecast for the remainder of the year to 1.5 per cent, dropping from 1.8 per cent.
 
The riots, which saw widespread looting and conflict between police and crowds of youths, raised their own questions over the UK’s commitment to spending cuts.
 
As part of the government’s plans to reduce the public budget deficit, police numbers will be reduced and funding for youth schemes has also been pulled.
 
However, as Parliament was recalled to discuss the civil disorder affecting many parts of England, chancellor George Osborne addressed the UK economic situation.
 
Osborne told members of Parliament that the global levels of indebtedness would make the recovery hard, but added that the UK had become a ‘safe haven’ for investors. The Chancellor of the Exchequer called on European leaders to tackle the debt crisis facing the Eurozone.
 
The calls came as France emerged as the latest Eurozone member to have its credit rating called into question. The French economy did not grow in the second quarter, according to figures from France’s statistics office, compared with growth of 0.9 per cent in the first quarter.
 
Fears over the fragility of European stock markets also prompted regulators in four countries - including France, Italy, Spain and Belgium – to suspend short-selling in the banking and financial sector. This was particularly significant as French bank Societe Generale was forced to quash rumours over its financial stability.
 
Elsewhere in the world, the Hong Kong Stock Exchange was forced to suspend trading in several companies – such as British banking giant HSBC – after it was targeted by hackers.

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