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We marked last week’s UK market ructions with a prediction of further weakness in sterling and a continued rise in gilt yields.
Société Générale’s Sám Cártwríght has summed up the situation neatly:
A toxic combination of stagflation and debt sustainability concerns have resulted in UK gilts being disproportionally hit in the global bond sell-off. However, comparisons with the Truss market crisis are exaggerated, as the economic conditions are entirely different and new liquidity measures introduced by the Bank of England (BoE) should limit any disorderly rise in gilts. Nonetheless, the fiscal implications are more severe.
Despite Prime Minister Keir Starmer (whose bad week continued for other reasons) announcing an AI strategy today, things haven’t immediately improved and UK assets are once again stumbling.
In Starmer’s defence, it’s an attempt at roughly the right kind of thing. As Rabobank’s Jane Foley succinctly puts it:
No one would argue with the view that stronger growth levels would improve the prospects for UK debt, GBP and the UK government.
But engineering growth through fiscal policy or sheer vibescaping is, as has occasionally been noted, hard. What if there was another, simpler way?
Here in another note published today is TS Lombard’s Konstantinos Venetis:
The totality of high frequency macro indicators has laid bare the UK economy’s need for a shot in the arm from looser policy. An underwhelming fiscal impulse means that. In our view, the path of least resistance remains a deeper rate-cutting cycle than currently pencilled in by policymakers and market participants alike.
Buckle up — only one man can save Britain now:
Further reading:
— Putting some perspective on Britain’s bad markets week (FTAV)
Read the full article here