Gilt yields fell during January as investors sought the perceived safety of government bonds. Although the US and China signed their “Phase One” trade deal, this news – alongside the UK’s eventual departure from the EU on 31 January – was overshadowed by growing concerns over the spread and severity of the coronavirus
- The UK left the EU on 31 January
- The IMF expects UK growth to outstrip the eurozone
- Inflation fell to its lowest level since November 2016
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Gilt yields fell during January as investors sought the perceived safety of government bonds. Although the US and China signed their “Phase One” trade deal, this news – alongside the UK’s eventual departure from the EU on 31 January – was overshadowed by growing concerns over the spread and severity of the coronavirus. Over January as a whole, the yield on the benchmark UK gilt fell from 0.76% to 0.53%. Governor of the Bank of England (BoE) Mark Carney commented: “The UK is entering a decade of potentially profound structural change. New trading arrangements will be struck … Major initiatives are likely … The Monetary Policy Committee (MPC) will need to assess the implications of all these developments”.
“The UK economy posted its slowest rate of annualised growth since spring 2012”
The UK economy posted its slowest rate of annualised growth since spring 2012 during November, contracting by 0.3% month on month. Growth was undermined by a deteriorating services sector. Over three months, the economy expanded by 0.1%. The International Monetary Fund (IMF) expects the UK to post stronger economic growth than the eurozone in 2019 and 2020, although its predictions assume an orderly Brexit and a gradual transition to a new economic relationship. The UK is forecast to achieve growth of 1.4% this year and 1.5% next year, compared with the eurozone’s projected growth of 1.3% this year and 1.4% next year.
The UK’s annualised rate of inflation fell from 1.5% in November to 1.3% in December, declining to its lowest level since November 2016 and fuelling speculation over the possibility of an interest-rate cut. The BoE expects inflation to remain “notably” below its target level of 2% throughout 2020 and into 2021, dampened by lower utility bills, before rising to meet the 2% target by the end of next year.
The BoE held its key base rate at 0.75% at the MPC’s January meeting. MPC members voted by seven to two in favour of maintaining their current stance, citing “recent indicators … that global growth has stabilised”, but the central bank emphasised that it remained ready to take action if warranted.
PWC’s Global CEO Survey found that the UK was ranked fourth amongst the top countries for growth – alongside India – behind the US, China and Germany. Nevertheless, over 53% of chief executives expect the global economy to slow down in 2020 for the first time in the survey’s 23-year history.
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