Archive

UK Politics: Betting On Red

• The 6 March budget will be highly political but looking to shore up Conservative ‘core’ support and fend off the Reform UK threat rather than appealing to the broader electorate. The embedded ‘bet’ is that an incoming Labour government will inherit the fiscal consequences.

By Alastair Newton

HEM: Reality Rolling Doves

• Resilient data keeps rolling back dovish pricing
• Rates do not seem tight enough to require deep cuts
• UK wage growth is too high for import prices to offset
• Excess demand and inflation delay BoE cuts to Feb-25
• The ECB may only delay to Sep-24, closer to the Fed

UK Housing Shock Has Blown Over Again

• Interest rate spikes in 2022 and 2023 rattled the housing market, but prompt reversals in market rates dissipated the shocks before they were adequately felt.
• UK mortgage rates are back to their lows from last spring, and approvals for new loans are higher than then. Lending values are set to turn positive again soon.
• The risk to economic activity and RPI inflation increasingly appears to have blown over, with housing depreciation troughing and MIPs unlikely to turn negative soon.

By Philip Rush

Why Neutral Rates are High

• Market interest rates still price a mean reversion, albeit with less imminence than earlier this year. Resilient economic data imply the prevailing neutral rate is higher.
• Slow GDP growth suggests opportunity is low, depressing the consensus view of neutral, but rising time preferences in the post-pandemic regime would also drive rates up.
• We find reasons for this structural shift and are mindful that another regime change is unlikely outside of a recession. This still provides a hawkish anchor to our forecasts.

By Philip Rush