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20/06/24
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British Markets Boosted Back to Life by Election Buzz, Rate Cut Hopes
Traders increased bets for a rate cut by the Bank of England in August, underpinning a pre-election rally for British government bonds and stocks although the central bank on Thursday kept rates on hold at a 16-year peak.
After the BoE delivered its decision, it indicated that it was inching closer to cuts, resulting in money markets placing a 44% chance on a move in August, up from about 32% the prior day. They priced in a 90% probability of a cut in Sept.
Data on Wednesday showed that UK inflation has fallen to the BoE’s 2% target and this encouraged these bets.
Investors now generally see rate cuts bolstering the UK economy together with a predicted landslide in the general election on July 4 for the opposition Labour Party.
This is a turnaround for UK markets damaged by the Brexit vote in 2016 and former Conservative Prime Minister Liz Truss’ under-funded mini-budget in 2022.
A portfolio manager at Janus Henderson, James Briggs, said he was upbeat about UK government bonds, corporate credit and stocks.
He said UK credit and equity valuations didn’t reflect the economy’s improving prospects yet and that government bonds would benefit because the risk of unorthodox fiscal policy was off the table.
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