May heads back to Brussels

January 2019

With no sign of a resolution to Brexit, gilt yields seesawed in January. As expected, Prime Minister Theresa May failed to get her Brexit deal through the House of Commons, and ended the month with no alternative but to head back to Brussels to see if parts of the Withdrawal Agreement – particularly those relating to the Northern Irish backstop – could be renegotiated.

  • No deal could jeopardise the UK’s credit rating, according to Fitch
  • The UK’s economic growth flagged during Q4 2018
  • The rate of CPI reached its lowest level for almost two years

To view the series of market updates through January, click here.


“The IMF warned that a no-deal Brexit would pose a threat to stability in financial markets”

With no sign of a resolution to Brexit, gilt yields seesawed in January. As expected, Prime Minister Theresa May failed to get her Brexit deal through the House of Commons, and ended the month with no alternative but to head back to Brussels to see if parts of the Withdrawal Agreement – particularly those relating to the Northern Irish backstop – could be renegotiated.

 

“Shinzo Abe pledged to “deepen” the strategic partnership between Japan and the UK following Brexit”

 

During January, the yield on the benchmark government bond rose as high as 1.35%% and fell as low as 1.195%. Over the month as a whole, it eased from 1.26% to 1.24%. Meanwhile, the yield on the short-dated gilt rose from 0.76% to 0.79%.

Credit ratings agency Fitch warned that a “no-deal” Brexit would have “negative consequences for UK trade, investment and economic prospects in the short to medium term”, and could jeopardise the UK’s credit rating. Fitch believes a no-deal Brexit could result in a recession “on the scale of that seen in the UK in the early 1990s”. Fitch currently rates the UK as “AA” with a “negative” outlook.

The International Monetary Fund (IMF) expects the UK economy to grow by 1.5% in 2019 and 2020. The forecast, however, assumes that the UK Government manages to reach a Brexit deal with the EU; the IMF warned that a no-deal Brexit would pose a threat to stability in financial markets. Elsewhere, the World Bank believes a no-deal outcome could lead to “significant disruptions to activity in the short term and lasting economic losses over the medium term”. Looking ahead, investors are likely to remain vigilant towards the possible impact of higher import prices upon inflation and the value of the pound.

Economic growth in the UK lost pace during the three months to November, slowing from 0.4% in October to 0.3%. The manufacturing sector contracted by 0.3% over the period. The UK’s annualised rate of consumer price inflation fell from 2.3% in November to 2.1% in December, reaching its lowest level for almost two years. In comparison, average earnings (excluding bonuses) rose by 3.3% year on year between August and October.

UK companies are suffering from the combined effects of a skills shortage, slowing sales, and mounting pricing pressures, according to the. British Chambers of Commerce (BCC), which urged the Government to consider the concerns of businesses when determining post-Brexit immigration policy.

 

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