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Stock market continues to tumble

16 / 10 / 2014
Stock market continues to tumbleUK companies may face a new economic crisis as stock markets around the world have tumbled.

Share prices have plunged on the FTSE and this has been matched by falls elsewhere in Europe, Asia and the Wall Street  Dow Jones, S&P 500 and Nasdaq indexes.

These developments have been attributed to two events; fears of a global Ebola epidemic and concerns that the global recovery is losing momentum, particularly in Europe.

China, Germany and the US have all posted disappointing economic news recently, while Greece and Italy have seen their borrowing costs rise.

In New York, chief market analyst at CMC Markets Michael Hewson said the end of the monetary stimulus from the Federal Reserve was a big area of concern for investors.

He stated: "As the monetary morphine has started to wear off, the patient has come to realise that a lot of the old problems still remain, and yesterday's (October 15th) poor US data helped trigger a rather extreme reaction in not only the stock markets, but bond markets too, as complacent investors rushed to hedge themselves."

However, Europe may be the biggest concern for UK companies. While the British economy has been growing swiftly this year and unemployment has fallen below two million, a lot of companies will depend to a large extent on trade with the eurozone for further growth. That could be seriously hampered if the eurozone slides back into recession.

The UK government has warned that new problems in the eurozone pose a major risk, as do the volatile situation in Ukraine and the Ebola crisis.

If the stock market falls are not a temporary phenomenon, but a signal that the world economy is going to take a new turn for the worse, British firms may find their borrowing costs are kept low by the Bank of England in a bid to limit the impact on growth.

Government and independent forecasts for the UK economy have all tipped 2015 to bring lower growth than this year, but still at a healthy rate.

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