FTSE 100 hesitant to continue higher as economists warn of historic economic disruptions

The UK’s Institute for Fiscal Studies (IFS) has warned that the country may witness an increase in the budget deficit levels that are “not seen in peacetime". In the meantime, FTSE 100 is struggling to extend its rebound to levels above 5,800.

Fundamental analysis: A “colossal increase” in the country’s budget deficit

Paul Johnson, the director of the Institute for Fiscal Studies has said, has warned that the country’s budget deficit may rise to unprecedented levels due to the economic impact of coronavirus.

Johnson believes that the deficit may go as high as £260 billion, from less than £50 billion for the 2019-2020 financial year, which is likely to result in the higher taxes in the coming years. 

The latest figures from the Office for National Statistics (ONS) on budget deficit didn’t take into account the government’s big spending to fight the consequences of the COVID-19 outbreak.

Separately, Jan Vlieghe, a member of the BoE's interest-rate setting committee, issued a warning that early economic indicators are pointing to a country “experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries".

Technical analysis: FTSE struggles at 5,800

For the third week in the last month, the FTSE 100 index has attempted to clear the horizontal resistance around 5,800 without much success. As a result, the index is on the way to create a bearish candle on a weekly chart for the second consecutive week.

The penultimate candle on this chart is a hanging man candlestick pattern that is classified as a bearish reversal pattern. Moreover, the FTSE 100 is on the way to create a doji candle for the present week, which signals indecision among traders on the future trend direction.

Hence, the risk is to the downside for the index from here. The 4,800 zone remains the crucial support for the buyers should the index turn south in the coming weeks. 

Summary

Numerous economic analysts and policymakers have warned that the UK is facing major economic turmoil in the coming years as a result of the huge government spending to fight consequences of the COVID-19 outbreak.