February 29, 2024
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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

February 27, 2024
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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

February 20, 2024
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2% is Neither Necessary Nor Sufficient

  • UK CPI inflation is slowing, but low 6-month and 3m-o-3m growth rates don’t provide any helpful signal at the 2yr horizon. Relevant measures remain above the 2% target.
  • Falling energy prices are depressing spot inflation closer to target this summer. Without sustainable reasons, proximity to 2% is not a sufficient condition for rate cuts.
  • The BoE could clarify its reaction function with threshold guidance of what would be necessary to consider cuts. It probably won’t do this, despite the benefits.

By Philip Rush

February 19, 2024
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UK Politics: The Right Bites

  • Following Reform UK’s strong performance in last week’s by-elections, the 29 February Rochdale by-election will create pressure for Rishi Sunak from within his party to shift rightwards or step down.

By Alastair Newton