New article from Tatton Investment Management: UK rate rise: ‘one and done’ or beginning of rate

3 November 2017

It has been an eventful start to November, following a full-on October that generated pleasing returns for investors in global capital markets (see table above). The financially interested UK public will have focused on the first interest rate rise in the UK for more than a decade – by 0.25%. Two weeks ago, we had covered the UK’s developing inflation and interest rate dynamics in our second article and strongly suggested that this 0.25% rate rise would happen this week. Our readers will therefore have been as unsurprised as markets were and so the little market reaction there was to the announcement by the Bank of England (BoE) on Thursday was actually a small but still counter intuitive decline in short term yields and £-Sterling.

This would have been a reaction to what one City commentator called the ‘least committed rate hike we could have expected’ – on the basis that the BoE’s accompanying comments focused more on the weaknesses of the UK’s economic situation – hardly a backdrop for further rate rises next year. Nevertheless, the rate setting committee’s indication that another two 0.25% rate rises over the next 24 months (!) were likely, may still be sufficient to prevent a deterioration of £‑Sterling’s value beyond the recent lows. This in turn could indeed be the best medicine of the UK’s central bank against further inflationary pressures which thus far have not been caused by rising wages, but increasing prices of imported goods.

So, is there now the risk of increasing pressure on the mortgage laden UK public, which would further undermine the UK consumers’ propensity to spend? Well, at this pace probably little. The BoE itself estimates that the average mortgage burden will increase by £15 per months. But even from that angle, the Financial Times reported that due to lower home ownership, only 24% of UK households now even have a mortgage (compared to 34% in 2000) and only 9.6% remain on variable rate mortgages, while the over 14%, who are on fixed terms, will initially be unaffected.

As a consequence, we see our view confirmed that despite all the rate rise rhetoric, the BoE remains on a very glacial path of rate rises, which for the time being has minimal impact of the discretionary spending power of the UK consumer. But make no mistake – unless the UK falls into a Brexit induced recession – the direction of travel of interest rates and bond yields has been reversed and points upwards from here.

Other notable developments were president Trump’s announcement (finally) that he would replace Fed chair Janet Yellen by appointing Jay Powell. Again, this had been widely expected as of late and since – as we recently wrote here - his policy views have been very similar to Yellen’s, markets took it as another non-event. On the more market and economy relevant subject of the tax reform, far less progress was forthcoming and with the Trump administration coming under increasing investigative pressure over the Russian influence affair, many expect that very little real will happen this side of Christmas.

The more unnerving developments occurred in Spain, where, as widely reported, the Catalan conflict seemed to come to a head. However, the situation remained as relatively calm as the Spanish bond markets. This may have had to do with the fact that the Spanish government also announced that it would call for early regional elections in Catalonia. This would return the conflict resolution onto a democratically legitimised political path. This remains a watch and wait situation, but for the time being it feels that the risk of immediate escalation has been defused.

Finally, the more speculatively inclined investors where enthralled by the renewed meteoric rise of the trade value of the crypto-currency Bitcoin. Reaching $7,000 per coin over the week, its perceived value has now increased 7-fold since the beginning of the year and all virtual coins in circulation are equivalent to more than 100 billion US$. There are plenty of voices around warning that this pseudo currency is backed by not much more than speculative interest and the hope of internet finance enthusiasts that global crypto currencies may one day replace traditional national currencies. At the very least however, I would note that the recent value development has all the hallmarks of a market mania which inevitably will end in a value collapse at some point in the not so distant future.   

News Archive

3 December 2018

New article from Tatton Investment Management: Predicaments


15 November 2018

Interim Results for the six months ended 30 September 2018


15 October 2018

New article from Tatton Investment Management: Autopsy of a stock market sell-off


1 October 2018

New article from Tatton Investment Management: Poor politics containing bond market risks?


27 September 2018

New article from Tatton Investment Management: Brexit clamour vs. real market new


7 September 2018

New article from Tatton Investment Management: Interesting times ahead


31 August 2018

New article from Tatton Investment Management: “Not the end of the world”


24 August 2018

New article from Tatton Investment Management: Steady markets vs. noisy politics


17 August 2018

New article from Tatton Investment Management: Political strongman tactics come home to roost


10 August 2018

New article from Tatton Investment Management: Summer heat wave makes way for return of political he


3 August 2018

New article from Tatton Investment Management: A gentle deceleration?


27 July 2018

New article from Tatton Investment Management: Hot air for a hot summer?


20 July 2018

New article from Tatton Investment Management:Earnings are growing, why worry?


13 July 2018

New article from Tatton Investment Management: Hard Brexit demonstration potential?


6 July 2018

Notice of Annual General Meeting


6 July 2018

New article from Tatton Investment Management: It is getting hot


29 June 2018

New article from Tatton Investment Management: Digesting or consolidating?


27 June 2018

Preliminary Results for the year ended 31 March 2018


22 June 2018

New article from Tatton Investment Management: Fragile recovery


15 June 2018

New article from Tatton Investment Management: No surprises


8 June 2018

New article from Tatton Investment Management: Delicate equilibrium


1 June 2018

New article from Tatton Investment Management: Ignore politics at your peril


25 May 2018

New article from Tatton Investment Management: GDPR? No - far more interesting news!


18 May 2018

New article from Tatton Investment Management: What's the economic reality of this week's news?


11 May 2018

New article from Tatton Investment Management: Batten-down-the-hatches?


4 May 2018

New article from Tatton Investment Management: Past the peak?


27 April 2018

New article from Tatton Investment Management: Confusing signals?


20 April 2018

New article from Tatton Investment Management: A mixture of messages


6 April 2018

New article from Tatton Investment Management: Could do better


6 April 2018

New article from Tatton Investment Management: Peaking, plateauing or dimming – and how about that


29 March 2018

New article from Tatton Investment Management: End of a stormy quarter


23 March 2018

New article from Tatton Investment Management: Now we know it's risky!


16 March 2018

New article from Tatton Investment Management: Back to Normal?


9 March 2018

New article from Tatton Investment Management: Tariffs to growth


2 March 2018

New article from Tatton Investment Management: Time to take some profits


23 February 2018

New article from Tatton Investment Management: Change of direction or gradual normalisation?


16 February 2018

New article from Tatton Investment Management: Breathing easier for the moment


9 February 2018

New article from Tatton Investment Management: Meteoric stock markets crash bac


6 February 2018

Tatton Investment Management's Stock Market Correction Assessment


2 February 2018

New article from Tatton Investment Management: Good news turns bad news - again!


26 January 2018

New article from Tatton Investment Management: Surprises


19 January 2018

New article from Tatton Investment Management: US$ weakness versus Bitcoin and Carillion


12 January 2018

New article from Tatton Investment Management: Bullish sentiment rings alarm bells


5 January 2018

New article from Tatton Investment Management: Encouraging kick-off


15 December 2017

New article from Tatton Investment Management: 2017 - taking stock


8 December 2017

New article from Tatton Investment Management: Progress versus Bitcoin


5 December 2017

Interim results for the six months ended 30 September 2017


1 December 2017

New article from Tatton Investment Management: Sudden, but not entirely unexpected


24 November 2017

New article from Tatton Investment Management: Invincible markets?


17 November 2017

New article from Tatton Investment Management: Yield-curve flattening: a bad omen?


10 November 2017

New article from Tatton Investment Management: Nervous investors herald more volatile markets


3 November 2017

New article from Tatton Investment Management: UK rate rise: ‘one and done’ or beginning of rate


27 October 2017

New article from Tatton Investment Management: Trick or treat season


13 October 2017

New article from Tatton Investment Management: All-time highs and Q3 results outlook: Reasons to be


6 October 2017

New article from Tatton Investment Management: Bad news – good news


29 September 2017

New article from Tatton Investment Management: Movements


22 September 2017

New article from Tatton Investment Management: QT to reverse QE and 2-year transition period to soft


15 September 2017

New article from Tatton Investment Management: BoE guides for year-end rate hike - Bluff or real?


8 September 2017

New article from Tatton Investment Management: ‘Back to school’ amidst hurricanes, earthquakes


1 September 2017

New article from Tatton Investment Management: Bad news, Good news


25 August 2017

New article from Tatton Investment Management: Summer low or summer lull?


18 August 2017

New article from Tatton Investment Management: More sellers than buyers


11 August 2017

New article from Tatton Investment Management: Stocks take note of North Korea crisis - or do they?


4 August 2017

New article from Tatton Investment Management: Consolidated base but momentum dwindling


28 July 2017

New article from Tatton Investment Management: Summer thoughts about the ‘longer term’


21 July 2017

New article from Tatton Investment Management: Summer lull - delayed


14 July 2017

New article from Tatton Investment Management: Pre summer-holiday investment check


7 July 2017

New article from Tatton Investment Management: Global growth ploughs on while markets take a breathe


23 June 2017

New article from Tatton Investment Management: Quo Vadis Britain?