UK government bonds experienced a choppy November as General Election campaigning got under way. Meanwhile, the pound fluctuated as investors weighed up possible outcomes from the election, ranging from an outright working Parliamentary majority for the Conservative Party, through a hung Parliament, to the possibility of a Labour Government.
- The UK economy grew by 1% YoY in Q3
- BoE Governor Mark Carney may stay on to ensure an orderly post-Brexit handover
- Demand for bond funds was strong in October
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UK government bonds experienced a choppy November as General Election campaigning got under way. Having begun the month at 0.57%, the yield on the benchmark UK government bond rose as high as 0.81% before ending November at 0.56%.
“The Bank of England held its key interest rate at 0.75% for another month during November”
Over the month as a whole, the pound fluctuated as investors weighed up possible outcomes from the election, ranging from an outright working Parliamentary majority for the Conservative Party, through a hung Parliament, to the possibility of a Labour Government. Nevertheless, the pound ended November largely unchanged at 1.29 against the US dollar.
Inflation rose at an annualised rate of 1.5% in October, following September’s increase of 1.7% as a reduction in the energy price cap led to a drop in utility prices. Growth in average earnings (excluding bonuses) eased to 3.6% in the three months to August to 3.6% in the three months to September. The rate of unemployment edged lower to 3.8%.
The Bank of England (BoE) held its key interest rate at 0.75% for another month during November, although two of its nine monetary policymakers voted for a cut to bolster economic growth. The UK economy posted growth of 1% year on year during the third quarter, and the BoE expects the economy to grow by 1.6% in 2020, 1.8% in 2021, and 2.1% in 2022.
Meanwhile, BoE Governor Mark Carney is scheduled to step down on 31 January 2020; however, he indicated that he may extend his term beyond that date in order to ensure that the handover to his successor is not complicated by an unresolved Brexit. Looking ahead, the BoE expects Brexit-related uncertainties to diminish gradually, providing a boost for household and business spending. Business investment has already fallen by 11%, and some Brexit uncertainties are likely to continue until longer-term challenges – such as the terms of the transition period – are resolved.
£ Strategic Bond was the most popular fund sector during October, according to the Investment Association (IA), which found that over half of the £2.5 billion invested by UK savers into funds during the month was invested into bond funds. UK Gilts and £ Corporate Bond were also in the top ten most popular IA sectors; UK Gilts experienced a sharp increase in demand, while £ Corporate Bond funds rebounded from substantial outflows in September.
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