Having surged earlier in the month, amid rising hopes of a Brexit deal, gilt yields subsequently dipped later in October when it became clear that Brexit remained unresolved. As Parliament rejected the timetable for Prime Minister Boris Johnson’s new Withdrawal Agreement, the UK was forced to ask the EU for another extension to the deadline.
- The UK will hold a General Election on 12 December
- UK productivity deteriorated sharply
- Growth in the labour market showed signs of cooling
Having surged earlier in the month, amid rising hopes of a Brexit deal, gilt yields subsequently dipped later in October when it became clear that Brexit remained unresolved. As Parliament rejected the timetable for Prime Minister Boris Johnson’s new Withdrawal Agreement, the UK was forced to ask the EU for another extension to the deadline, and a General Election was called for 12 December. Over October as a whole, the yield on the benchmark UK government bond increased from 0.39% to 0.57%.
“The UK cannot teeter on the edge of Brexit indefinitely” (British Retail Consortium)
Following the announcement of the General Election, the Confederation of British Industry (CBI) urged politicians to seize the “one-off chance to break the gridlock that has blighted our country for over three years”. Meanwhile, the British Retail Consortium (BRC) commented: “Each repeating cycle of parliamentary impasse and extension is costing retailers hundreds of millions … The UK cannot teeter on the edge of Brexit indefinitely”.
The UK economy posted better-than-expected growth of 0.3% between June and August. Although the economy contracted by 0.1% during the month of August, the Office for National Statistics (ONS) revised up its growth calculation for July from 0.3% to 0.4%. However, productivity posted its fastest annualised decline since 2014 during the second quarter of 2019, dropping by 0.5% year on year after remaining flat for the previous two quarters. Elsewhere, a deterioration in the UK’s services sector, alongside ongoing weakness in the construction and manufacturing sectors, stoked concerns over the economy’s resilience in the face of Brexit-related uncertainties, trade tensions, and wider concerns over the outlook for the global economy. Growth in the UK’s labour market showed signs of cooling: the rate of unemployment edged up from 3.8% in the three months to July to 3.9% in the three months to August as employment growth moderated, and annualised growth in wages (excluding bonuses) eased to 3.8% during the same period.
Credit ratings agency Fitch maintained its “AA” long-term issuer default rate on the UK during October. Fitch also held its “negative” ratings watch, citing the current uncertainty surrounding Brexit. Fitch warned that three years of protracted Brexit negotiations have “strained UK politics and weakened policy cohesion … (paralysing) the policy-making agenda and … having a material negative impact on UK governance indicators”. In particular, Fitch highlighted the economic damage inflicted by a slump in business investment and sentiment.
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