Government bond yields dropped sharply during February as the coronavirus continued to spread across the world, fuelling concerns over the impact on global economic growth. Worried investors hurried towards the “safe havens” of government bonds and gold.
- The benchmark UK gilt yield reached its lowest level for four months
- The Government unveiled its Brexit negotiating stance
- The UK economy stagnated in Q4 2019
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Government bond yields dropped sharply during February as the coronavirus continued to spread across the world, fuelling concerns over the impact on global economic growth. Worried investors hurried towards the “safe havens” of government bonds and gold, and drove down the yield on the benchmark UK Government bond to its lowest level for four months. Over February as a whole, the yield on the benchmark UK gilt fell from 0.53% to 0.44%.
“The EU is ready to grant the UK “super-preferential” access … but the UK has to accept EU standards”
The UK Government unveiled its negotiating stance towards its future relationship with the EU. The EU’s Chief Brexit Negotiator, Michel Barnier, said that the EU is ready to grant the UK “super-preferential access” to EU markets, but the UK has to accept EU standards. According to credit ratings agency Standard & Poor’s (S&P), the closer the UK remains aligned to EU regulatory standards, the lower tariffs and trade quotas with the EU are likely to be. Meanwhile, credit ratings agency Fitch highlighted some of the potential “flashpoints” for the negotiations – including fisheries and the enforcement of Northern Ireland border arrangements – and outlined various possible scenarios, including a trade “cliff-edge” or even an extension to the transition period.
The UK economy stagnated during the final quarter of 2019. Growth in the services and construction sectors was offset by a contraction in manufacturing which was exacerbated by poor performance from the beleaguered automotive sector. Over 2019 as a whole, the UK economy posted growth of 1.4%, compared with 2018’s rate of 1.3%. In comparison, Germany’s economy grew by 0.6% over 2019, while France expanded by 1.3% and the US grew by 2.3%.
Higher prices for fuel drove up the rate of consumer price inflation in January from 1.3% in December to 1.8% to reach its highest level since August. Despite this, inflation remains below the Bank of England’s (BoE’s) target of 2%, boosting speculation over the possibility of a rate cut at the Monetary Policy Committee’s (MPC’s) next meeting. Elsewhere, average UK earnings (excluding bonuses) rose to their highest level since March 2008 over the three months to December, climbing at an annualised rate of 3.2% to reach £512 per week. Retail sales rallied in January, posting their first increase after two consecutive months of decline. Sales rose by 0.9% month on month, and sales of clothing increased by 3.9%.
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