x
_thumbnail_id: Array
author: Array
_author: Array
article_modules: Array
_article_modules: Array
modules: Array
_modules: Array
modules_2_download_box_download_box_title: Array
_modules_2_download_box_download_box_title: Array
modules_2_download_box_download_box_button_text: Array
_modules_2_download_box_download_box_button_text: Array
modules_2_download_box_download_box_button_url: Array
_modules_2_download_box_download_box_button_url: Array
modules_1_title: Array
_modules_1_title: Array
modules_1_content: Array
_modules_1_content: Array
modules_1_download_box_download_box_title: Array
_modules_1_download_box_download_box_title: Array
modules_1_download_box_download_box_button_text: Array
_modules_1_download_box_download_box_button_text: Array
modules_1_download_box_download_box_button_type: Array
_modules_1_download_box_download_box_button_type: Array
modules_1_download_box_download_box_button_url: Array
_modules_1_download_box_download_box_button_url: Array
modules_1_download_box: Array
_modules_1_download_box: Array
modules_2_quote_author: Array
_modules_2_quote_author: Array
modules_2_enable_tweet: Array
_modules_2_enable_tweet: Array
modules_2_quote: Array
_modules_2_quote: Array
modules_3_title: Array
_modules_3_title: Array
modules_3_content: Array
_modules_3_content: Array
modules_4_title: Array
_modules_4_title: Array
modules_4_content: Array
_modules_4_content: Array
modules_5_background_image: Array
_modules_5_background_image: Array
modules_5_video_title: Array
_modules_5_video_title: Array
modules_5_video_thumbnail_url: Array
_modules_5_video_thumbnail_url: Array
modules_5_video_url: Array
_modules_5_video_url: Array
modules_5_video_duration: Array
_modules_5_video_duration: Array
modules_5_video_description: Array
_modules_5_video_description: Array
modules_5_video_embed_code: Array
_modules_5_video_embed_code: Array
modules_6_title: Array
_modules_6_title: Array
modules_6_content: Array
_modules_6_content: Array
modules_5_image_caption: Array
_modules_5_image_caption: Array
_yoast_wpseo_content_score: Array
article_modules_0_title: Array
_article_modules_0_title: Array
article_modules_0_content: Array
_article_modules_0_content: Array
article_modules_1_download_box_download_box_title: Array
_article_modules_1_download_box_download_box_title: Array
article_modules_1_download_box_download_box_button_text: Array
_article_modules_1_download_box_download_box_button_text: Array
article_modules_1_download_box_download_box_button_type: Array
_article_modules_1_download_box_download_box_button_type: Array
article_modules_1_download_box_download_box_button_url: Array
_article_modules_1_download_box_download_box_button_url: Array
_yoast_wpseo_primary_category: Array
_wp_old_slug: Array
_yoast_wpseo_title: Array
page_summary: Array
_page_summary: Array
article_modules_2_title: Array
_article_modules_2_title: Array
article_modules_2_content: Array
_article_modules_2_content: Array
article_modules_1_quote_author: Array
_article_modules_1_quote_author: Array
article_modules_1_enable_tweet: Array
_article_modules_1_enable_tweet: Array
article_modules_1_quote: Array
_article_modules_1_quote: Array
_yoast_wpseo_focuskw_text_input: Array
_yoast_wpseo_focuskw: Array
_yoast_wpseo_linkdex: Array
article_primary_tag: Array
_article_primary_tag: Array
_wp_old_date: Array
_yoast_wpseo_metadesc: Array
_dp_original: Array
_edit_lock: Array
_edit_last: Array
article_modules_3_title: Array
_article_modules_3_title: Array
article_modules_3_content: Array
_article_modules_3_content: Array
article_modules_4_title: Array
_article_modules_4_title: Array
article_modules_4_content: Array
_article_modules_4_content: Array
modules_0_module_title: Array
_modules_0_module_title: Array
modules_0_background_color: Array
_modules_0_background_color: Array
modules_0_module_type: Array
_modules_0_module_type: Array
modules_0_filter_posts_by_taxonomy: Array
_modules_0_filter_posts_by_taxonomy: Array
modules_0_filter_posts_by_tags: Array
_modules_0_filter_posts_by_tags: Array
modules_0_link_text: Array
_modules_0_link_text: Array
modules_0_link_url: Array
_modules_0_link_url: Array
modules_1_text: Array
_modules_1_text: Array
modules_2_module_title: Array
_modules_2_module_title: Array
modules_2_background_color: Array
_modules_2_background_color: Array
modules_2_column_ratio: Array
_modules_2_column_ratio: Array
modules_2_editor_content_left: Array
_modules_2_editor_content_left: Array
modules_2_button_text_right: Array
_modules_2_button_text_right: Array
modules_2_button_type_right: Array
_modules_2_button_type_right: Array
modules_2_button_url_local_right: Array
_modules_2_button_url_local_right: Array
Markets vs the BoE
Views

Markets vs the BoE

Richard Conway Weekly bulletin April 2019

Last week’s bulletin cautioned that a return to fundamentals may be in the offing. If recent data are anything to go by, that may not be a good thing.

UK GDP disappoints

Generally speaking, the UK economy has done rather well over the last three years. Despite the Brexit backdrop employment has gone from strength to strength, inflation is right around target, and GDP growth (with a couple of exceptions) has been broadly robust.

Last week’s GDP figures will therefore have come as a disappointment. Rolling quarterly growth at a tepid 0.3% suggests that Q4 weakness has continued into 2019 and that the UK economy may have shifted to a lower gear. For context, trend is thought to be closer to 0.5 or 0.6%.

Bright spots hard to come by

Broader global weakness can take some, but not all, of the blame. It’s becoming increasingly hard to find bright spots in the domestic economy too.

Services growth fell to just 0.1% between January and February, while the strong showing by manufacturing looks to have been flattered by stockpiling in the run up to 31 March . The latter is particularly troublesome. Absent a bounce in demand down the road this can have the effect of transferring output from tomorrow to today, depressing future growth. Firms are also more likely to get the numbers wrong than right.

Markets vs the BoE

Markets have taken this narrative on board judging by recent shifts in the gilt and swap curves. Both have fallen some 20-30bps on the expectation of lower growth ahead and a slower pace of rate hikes as a result.

Not quite so at the Bank of England. In the eyes of policymakers, “the MPC’s February Inflation Report projections appear on track”. Built on the central assumption of an orderly Brexit outcome, these envisage a gradual tightening of monetary conditions as a withdrawal agreement is finalised and economic slack falls. Their thinking has remained resolutely consistent. Despite acknowledging uncertainty ahead, there still appears to be appetite for higher interest rates on Threadneedle Street.

They cannot both be correct. Either the BoE risks losing credibility by ignoring the fundamentals, or markets are wrong – in which case we are in line for a correction.

Most would agree on the lesser evil.

For more information, please contact Richard Conway, Associate Director at JCRA, at richard.conway@jcrauk.com.

 

Contact us

If you need hedging or debt advice or would like to speak to the team, please get in touch.