November 2017
Brexit continued to dictate market sentiment during November, and UK gilt yields rose over the month amid cautiously rising hopes that the UK and EU will manage to reach an agreement over their Brexit divorce settlement. Nevertheless, Brexit-related uncertainties have curbed the UK’s economic prospects, according to the OECD and the European Commission. The BoE raised interest rates for the first time since 2007 during November, increasing base rate from 0.25% to 0.5%.
- Official OBR forecasts for UK GDP growth were downgraded in the Budget
- Inflation remained at 3% YoY in October
- The Chancellor set aside £3 billion to fund Brexit preparations
To view the series of market updates through November, click here
“The Bank of England urged Brexit negotiators to reach a timely agreement – “the sooner the better"
Brexit continued to dictate market sentiment during November, and UK gilt yields rose over the month amid cautiously rising hopes that the UK and EU will manage to reach an agreement over their Brexit divorce settlement. During November, the yield on the ten-year gilt rose from 1.37% to 1.39%, while the yield on the short-dated gilt – which matures in 2020 – increased from 0.54% to 0.59%.
Nevertheless, Brexit-related uncertainties have put a brake on the UK’s economic prospects, according to the Organisation for Economic Co-operation & Development (OECD). The OECD expects the UK to lag other major economies over the next few years and has predicted growth of 1.5% this year, 1.2% next year, and 1.1% in 2019. Meanwhile, the European Commission (EC) predicted that UK economic growth will be considerably weaker than that of Europe in 2019 as the UK continues to grapple with Brexit-related uncertainties and inflationary pressures. The EC has forecast the UK economy to expand by only 1.1% in 2019, compared with a rate of 1.9% in the eurozone.
Elsewhere, in the Autumn Budget, Chancellor Philip Hammond unveiled harsh cuts to the official GDP growth forecasts from the Office for Budget Responsibility (OBR). Blaming Brexit and low productivity for the downgrades, the OBR now expects the UK economy to expand by 1.5% in 2017, 1.4% in 2018, and 1.3% in 2019. The Chancellor also announced that £3 billion had been set aside for the UK’s Brexit preparations, and more money will be allocated if needed.
The Bank of England (BoE) urged Brexit negotiators to reach a timely agreement – “the sooner the better” – on the implementation of Brexit in order to allow financial institutions to complete all necessary processes before March 2019. The BoE also announced that it would raise the amount of capital that banks have to hold in their countercyclical buffers from 0.5% to 1% from 28 November 2018, in order to increase their protection from risks beyond those presented by Brexit.
The BoE raised interest rates for the first time since 2007 during November, increasing base rate from 0.25% to 0.5%. The members of the Monetary Policy Committee voted by seven to two in favour of tightening. The UK’s annualised rate of inflation remained at 3% in October 2017, underpinned by higher prices for food, non-alcoholic drinks, and recreational goods.
A version of this and other market briefings are available to use in our newsletter builder feature. Click here
