December 2019
UK government bonds endured a choppy December as investor sentiment was dictated by Brexit and mounting fears of a no-deal scenario. Parliament was scheduled to hold a “meaningful vote” on Prime Minister Theresa May’s Brexit deal on 11 December, but this vote was postponed until January amid concerns that the government would lose
- The benchmark UK gilt yield rose as high as 1.38% during the month
- Business groups urged MPs to reach agreement on a Brexit deal
- Wages rose at their fastest rate for almost a decade
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UK government bonds endured a choppy December as investor sentiment was dictated by Brexit and mounting fears of a no-deal scenario. Parliament was scheduled to hold a “meaningful vote” on Prime Minister Theresa May’s Brexit deal on 11 December, but this vote was postponed until January amid concerns that the government would lose. Mrs May warned: “It is in the interests of the EU as well as the UK to get this over the line. A disorderly Brexit would be good for no-one”.
“Brexit is set to continue to undermine activity in the housing market”
Over the month, the yield on the benchmark government bond rose as high as 1.38% and fell as low as 1.18%; over December as a whole, it rose from 1.23% to 1.26%. Meanwhile, the yield on the short-dated gilt – which matures in 2021 – rose from 0.71% to 0.76%.
Data from the Office for National Statistics (ONS) showed that business investment has fallen for three consecutive quarters, undermined by Brexit-related uncertainties. Five prominent UK business groups, including the Confederation of British Industry (CBI), the British Chambers of Commerce (BCC), and the Federation of Small Businesses (FSB) urged MPs to focus on reaching a deal, warned: “Firms are pausing or diverting investment that should be boosting productivity, innovation, jobs and pay, into stockpiling goods or materials, diverting cross border trade and moving offices, factories and therefore jobs and tax revenues out of the UK”.
The UK economy expanded by 0.4% over the three months to October, compared with growth of 0.6% in the three months to September. The rate of expansion was curbed by a moribund manufacturing sector and a decline in car sales. The Bank of England (BoE) downgraded its forecast for UK economic growth in the fourth quarter of 2018 from 0.3% to 0.2%, citing the impact of intensifying uncertainty over Brexit.
Brexit is set to continue to undermine activity in the housing market, according to the Royal Institution of Chartered Surveyors (Rics), not only in terms of purchase activity and prices, but also with regard to the planned housing developments.
Wages (excluding bonuses) rose at a quarterly rate of 3.3% over the three months to October, representing their most rapid increase for almost a decade. In comparison, the annualised rate of consumer price inflation eased from 2.4% in October to 2.3% in November, dampened by a decline in petrol prices.
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