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Portents of doom in the gilts market

Article Abstract:

The yield curve for UK government securities (gilts) has falttened and this could indicate slower economic growth. Steep yield curves tend to correlate with strong growth. The granting of independence to the Bank of England in setting interest rate may have affected the yield curve since inflation expectations have changed. The bank may raise interest rates enough to affect economic growth, but the rise in inflation and interest rates could be more than expected and holders of gilts could be hit by a rise in their yields.

Government securities

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Slowdown

Article Abstract:

NatWest Markets forecasts a slowdown for the United Kingdom economy in 1998, with net exports and government spending both down. Exports are affected by the high value of pound sterling, and competition from Asia. Consumers face increases in mortgage payments, tax increases, and will not benefit from demutualisation windfalls as occurred in 1997. Wage inflation could hit profits, but inflation could fall which could mean a reduction in interest rates.

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UK economy: Ken's humble pie

Article Abstract:

Growth of UK gross domestic product (GDP) for 1996 was forecast at 3% in Nov 1995 by the chancellor, Kenneth Clarke. His forecast may be revised downwards to 2.5% but he believes that growth will revive. This could happen because of stronger consumer demand with reductions in taxes and a real estate revival for residential property. Companies may destock instead of boosting production and this would lower economic growth levels further.

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