The yield on the benchmark UK gilt fell from 0.31% to 0.20% over December as a whole as investors reacted to the news of tightening coronavirus-related restrictions in response to rising infection rates and a new, more infectious variant of the virus.
- A post-Brexit trade deal was reached at the eleventh hour
- The pound rose to its highest level against the US dollar since spring 2018
- Redundancies reached a record high
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The yield on the benchmark UK gilt fell from 0.31% to 0.20% over December as a whole as investors reacted to the news of tightening coronavirus-related restrictions in response to rising infection rates and a new, more infectious variant of the virus. Gilts were choppy during the month, and sentiment – driven by worries over Covid-19, optimism over the vaccine rollout, and uncertainty over Brexit – pushed the yield on the ten-year government bond as high as 0.37% and as low as 0.17%.
“According to the ONS, the economy remains 7.9% below its pre-pandemic peak”
Investors generally welcomed an eleventh-hour post-Brexit trade deal, and the pound reached its highest level against the US dollar since spring 2018. Nevertheless, concerns over unresolved issues, including UK services, and financial services in particular, dampened any great celebration. The British Chambers of Commerce (BCC) urged the Government to provide clear guidance for companies, complaining: “Far too many details and procedures have been left, literally, to the last minute”.
Although the UK economy expanded for a sixth consecutive month during October, its rate of expansion continued to slow, falling from 1.1% in September to only 0.4% during October as some Covid-19 restrictions were reimposed. According to the Office for National Statistics (ONS), the economy remains 7.9% below its pre-pandemic peak. The rate of inflation dropped from 0.7% in October to 0.3% in November, driven down by lower prices for clothing, food, and non-alcoholic drinks.
The Bank of England (BoE) maintained its key interest rate at 0.1%, but policymakers remain “ready to take whatever additional action is necessary” to achieve its 2% inflation target. The Monetary Policy Committee (MPC) maintained its programme of asset purchases at £895 billion. BoE officials expect the UK economy to contract by more than 1% during the final quarter of 2020.
The rate of unemployment rose to 4.9% during the three months to October; this was 0.7 percentage points higher than the previous quarter, and 1.2 percentage points higher than the same period in 2019. The number of people out of work climbed to 1.69 million, and redundancies reached a record high of 370,000 during the period. The ONS reported that the number of payroll employees in the UK had fallen by 819,000 people since February, with job losses particularly concentrated in the retail and hospitality sectors, which have been hit especially hard by lockdown measures.
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