In this PERSPECTIVES Special we examine the reasons behind the UK assets’ bumpy start to the year. Issues covered include the re-pricing of global interest rate expectations, vulnerabilities from the UK’s “twin deficit”, the fiscal outlook, Bank of England policy options and the outlook for sterling, UK bonds and UK equities.
Key takeaways:
- Global bond markets off to a rough awakening in 2025, and one of the hardest hit countries is the UK. The fear: market participants worry about a repeat of the 2022 mini budget crisis. The reality: long-term Gilts have been selling off along with U.S. Treasuries.
- However, short-term risks remain high, inflation data is still important, as well as will be events across the Atlantic around Inauguration Day in the U.S. and the first weeks of the Trump administration.
- We see attractive GBP yields in the medium term with significant carry for UK bonds – both government and IG corporates, and cable (GBP/USD) to stabilise around current levels over the next months.
