The Cambridge Weekly – 17th October 2022

Change in the air

It is not often that market action in the UK capital market moves the global capital market dial, given our domestic stock market comprises just 3.1% of the global total and 4.1% of the global total government bond market. However, over the course of October, far bigger bond markets – like that of the US and Italy – have experienced significant changes in the wake of what happened last Friday in the UK.

Will the UK property downturn change the investment landscape?

In the wake of Kwasi Kwarteng’s ill-received budget, mortgages were the hot topic. Lenders pulled swathes of mortgage products in expectation of sharply higher interest rates from the Bank of England. When those products were reintroduced a few days later, the rates offered were three to four times higher. The potential effects on consumers and households were well-publicised – and the backlash therein was no doubt a big motivator for the government’s partial U-turn.

Gilt trip

The BoE’s emergency intervention three weeks ago was vital in stopping the gilt market bleed that the now former Chancellor’s unfunded tax cuts had triggered. But Governor Andrew Bailey is keen to remind everyone that what the Old Lady giveth, she can taketh away. Early last week, Bailey responded to extension requests on the BoE’s bond-buying programme by firmly telling UK pension funds “you’ve got three day left”.