Brextension eases demand for gilts

Demand for UK government bonds slipped during April: prices fell and yields rose as a six-month extension to Brexit allayed investors’ immediate concerns over the prospect of a disorderly no-deal scenario. Manufacturing growth rose to its highest level for 13 months during March; however, this was caused primarily by Brexit-related stockpiling.

  • Brexit-related stockpiling provided a short-term boost for economic growth
  • Retail sales received a boost from mild weather
  • Food price inflation rose at its fastest rate since November 2013

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Demand for UK government bonds slipped during April: prices fell and yields rose as a six-month extension to Brexit allayed investors’ immediate concerns over the prospect of a disorderly no-deal scenario. The Confederation of British Industry (CBI) urged politicians to use the extension as a “fresh start”, warning: “more of the same will just mean more chaos this autumn”.

“The CBI urged politicians to use the extension as a “fresh start””

Over April as a whole, the yield on the benchmark UK government bond climbed from 0.97% to 1.12%, but rose as high as 1.25% during the month. In comparison, the yield on the short-dated gilt – which matures in 2021 – increased from 0.66% to 0.74% during April. 

The UK economy posted month-on-month growth of 0.2% in February, and manufacturing growth rose to its highest level for 13 months during March; however, this was caused primarily by Brexit-related stockpiling that will eventually have to unwind. According to a survey undertaken by IHS Markit/CIPS, there are signs that European companies have started to move away from sourcing inputs from UK companies ahead of Brexit.

In its quarterly economic survey, the British Chambers of Commerce (BCC) found the economic environment was deteriorating for many UK businesses, impaired by a slowing global economy, ongoing Brexit-related uncertainties, and rising business costs. The survey found that the balance of firms reporting improving cashflow had fallen into negative territory for the first time since 2012, exposing companies to the impact of external shocks, including disruptions to supply chains. Optimism about profitability and turnover posted a sharp decline.

Warm weather provided a boost for retail sales in March, according to the Office for National Statistics (ONS); sales increased at an annualised rate of 6.7% during the month to reach their highest level since October 2016. Although sales at food and clothing stores posted an increase, sales at department stores fell by 0.3% year on year. 

Meanwhile, average earnings (excluding bonuses) rose at an annualised rate of 3.4% over the three months to February. In real terms, wages increased by 1.5% year on year, representing their highest level since the three months to July 2016. Elsewhere, food price inflation rose from 1.6% year on year in February to 2.5% during March, reaching its highest rate since November 2013. The British Retail Consortium (BRC) warned that a no-deal Brexit would continue to drive up food prices.


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