Economic nerves reach City as investors get jitters

THE slowdown and caution in the wider economy is reaching the City as clients grow nervous about global uncertainties and soaring inflation.

Many firms in the Square Mile boomed in the earlier stages of the pandemic, earning big fees raising funds for businesses seeking lifelines from investors.

Profits and bonuses soared. They are heading downwards now, trading updates from two investment banks today show.

Numis, which in particular has grown strongly of late, warned today that revenue for the first half of the year would be £74 million – 36% down on the record returns a year ago.

Merger activity was still strong, “but this was offset by a decline in equity capital markets activity across the industry which impacted our Investment Banking performance”.

Peel Hunt also said that while investment banking is still ahead with revenue for the year likely to be £131 million, there was a clear slowdown in the fourth quarter.

The broker, led by Steven Fine, said: “Our pipeline of Investment Banking deals remains strong, albeit there is heightened execution and timing risk in the current environment.”

Peel shares are down 35% this year – today they were up 3p at 127p.

Stock markets have recovered from a big sell-off as the Ukraine war began, but remain jittery. Bond markets have also been flashing warning signals, with yields falling on long term debt – that means investors are worried about the future.

Russ Mould, investment director at AJ Bell, said: “With the weather having turned from blue skies to snow showers in the matter of a week, there is also a chill in the air for the markets. European markets have frozen still amid concerns about financial pressures on consumers and businesses, and growing concern about a slowdown in global economic activity.”

Overnight, a closely watched gauge of business sentiment shows a collapse in confidence.

The monthly Institute of Directors index fell from -4 to -34 in March. Kitty Ussher, chief economist at the IoD, said economic conditions were “leading to many firms putting investment plans on hold”.

That in turn is likely to lead to lower tax payments to the Treasury, presenting another possible headache for chancellor Rishi Sunak.