Following Parliament’s rejection of a no-deal Brexit, sterling surged against the US dollar to its highest level since June 2018 and against the euro to its highest level since April 2017. The pound subsequently subsided as discussions in Parliament remained unresolved and the UK remained part of the EU as March ended. Despite protracted Brexit-related uncertainties, demand for UK government bonds has remained strong, and gilt yields have continued to fall.
- The future path of UK interest rates hinges on Brexit
- The UK economy picked up in January
- Consumer price inflation rose to 1.9% YoY
To view the series of market updates through March, click here
Following Parliament’s rejection of a no-deal Brexit, sterling surged against the US dollar to its highest level since June 2018 and against the euro to its highest level since April 2017. The pound subsequently subsided as discussions in Parliament remained unresolved and the UK remained part of the EU as March ended.
“The benchmark gilt yield dipped below 1% for the first time since Q3 2016”
The Confederation of British Industry (CBI) warned “the UK’s reputation, people’s jobs and livelihoods (were) at stake”, while the British Chambers of Commerce (BCC) urged Parliament to end the “corrosive damage and dislocation of ongoing uncertainty”. Despite protracted Brexit-related uncertainties, demand for UK government bonds has remained strong, and gilt yields have continued to fall. Towards the end of March, the benchmark gilt yield dipped below 1% for the first time since the third quarter of 2016, in response to mounting speculation over a no-deal Brexit. Over March as a whole, the yield on the benchmark UK government bond dropped from 1.25% to 0.97%, while the yield on the short-dated gilt – which matures in 2021 – fell from 0.85% to 0.66%.
The Bank of England (BoE) believes that the outlook for the UK economy will hinge on “the nature and timing of EU withdrawal” and that interest rates could move subsequently “in either direction”. Meanwhile, Brexit uncertainties have dampened confidence amongst prospective buyers and sellers of houses, according to mortgage lender Nationwide, and growth in house prices remains subdued. House prices in England posted their first annualised drop since 2012 during the first quarter, falling by 0.7% year on year. In contrast, prices in Wales, Scotland, and Northern Ireland continued to increase.
UK economic activity picked up during January, posting growth of 0.5% following a rebound in the services sector. Over the three months to the end of January, however, the economy expanded by only 0.2% overall, dampened by a slowdown in manufacturing.
Growth in average earnings (excluding bonuses) moderated slightly during the period, rising at an annualised rate of 3.4%, compared with the previous month’s growth rate of 3.5%. In comparison, the annualised rate of consumer price inflation rose from 1.8% in January to 1.9% in February, boosted by higher prices for food, alcohol and tobacco. The UK’s rate of employment rose to its highest rate since records began in 1971, climbing to 76.1% during the three months to January.
A version of this and other market briefings are available to use in our newsletter builder feature. Click here
