Investor confidence rallied during December following the Conservative Party’s decisive victory in the General Election. Boris Johnson’s 80-seat majority helped to reassure financial markets that Brexit would finally go through on 31 January 2020, although an amendment ruling out an extension of the transition period beyond 31 December 2020 raised fresh concerns over the possibility of a no-deal Brexit.
- Demand for gilts eased in December
- Andrew Bailey was appointed to be the next Governor of the Bank of England
- The manufacturing sector remained under pressure
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Investor confidence rallied during December following the Conservative Party’s decisive victory in the General Election. Boris Johnson’s 80-seat majority helped to reassure financial markets that Brexit would finally go through on 31 January 2020, although an amendment ruling out an extension of the transition period beyond 31 December 2020 raised fresh concerns over the possibility of a no-deal Brexit further down the line.
“Sterling rose to its highest level against the US dollar since March”
A return of confidence is likely to reduce the attractions of lower-risk assets such as UK government bonds, and demand for gilts fell during December, driving the yield on the benchmark gilt as high as 0.87% – its highest level since June. Over December as a whole, the yield on the benchmark UK gilt climbed from 0.56% to end the year at 0.76%, having started 2019 at 1.26%. Meanwhile, sterling rose to its highest level against the US dollar since March, ending 2019 at US$1.33.
Credit ratings agency Fitch affirmed its “AA” rating for the UK, citing the increased probability that the UK will quit the EU with a Brexit deal on 31 January 2020. Nevertheless, Fitch retained its “negative” outlook, reflecting the continued uncertainties in the relationship between the UK and EU as the two sides enter the transition period.
Andrew Bailey was appointed to be the next Governor of the Bank of England when current Governor Mark Carney steps down on 15 March 2020. At present, Mr Bailey is Chief Executive of the Financial Conduct Authority (FCA).
The UK’s annualised rate of inflation was unchanged in November compared with October at 1.5%, representing the slowest pace of year-on-year price increases for three years. Although prices for food and non-alcoholic beverages rose, this increase was offset by a decline in the price of and tobacco and hotel accommodation. Having contracted month-on-month during August and September, UK economic growth was flat in October, dampened by a weak performance from the manufacturing and construction sectors.
Job losses in the UK manufacturing sector grew at their fastest rate since September 2012 during November as companies attempted to cut costs. According to IHS Markit, manufacturers are being “squeezed between a rock and a hard place”. The manufacturing sector contracted for a seventh straight month during November as companies reduced inventory levels following pre-Brexit stockpiling ahead of the 31 October deadline.
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