Much has been made of the perceived UK economic slowdown, but the picture appears more mixed than outright negative.
The Bank of England regularly publishes a summary of business conditions, based on data compiled by its agents, who produce frequent quantitative assessments of economic conditions across the country. The latest survey data released last week, and shown in the table below, shows strengthening manufacturing (particularly for exporters), tightening labour markets and erosion of spare capacity, while retail and consumer-facing sectors are softening.
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We believe pressure on the consumer from rising inflation and lesser wage inflation is likely to ease before the end of the year.
In that context, 10-year gilt yields at 1.06% do not look appealing to our mind, with inflation yet to peak and the possibility of some increase in fiscal spending in the government’s November Budget.
For now though, ‘safe-haven’ flows owing to tensions with North Korea, coupled with a lack of gilt supply over the next month, is keeping gilt yields low.