Speculation over a rate cut in the UK seems curious. Anecdotal evidence points to a resurgence in property transactions since the General Election. The hard data suggests many homeowners have made their move, anticipating the Conservative victory, or moving swiftly once the result was confirmed. According to the Halifax index, house prices rose 3.3% over November and December.
The dispersion of house price movements mirrors employment patterns. Since Q1 2017, employment has jumped 5.6% in the West Midlands and by 4.9% in the East Midlands. Both regions have seen big gains in house prices. However, London is not that far behind: employment in London has fallen since September 2018, but is still up 4.1% since Q1 2017. Furthermore, the more recent data points to a renewed upturn in the London jobs market. Property prices are now stabilising in London and should turn higher in 2020.
With the unemployment rate falling again over the last two months to new lows (3.76%, October) and house prices turning up, the MPC does not need to cut. The Conservative Government is poised to ramp up public spending too. The buoyant stock market in the US reflects impressive gains in technology companies that have a strong footprint in the UK, particularly London (Alphabet, Facebook). As US equities extend their rally, Gilt yields are likely to drift higher. If rates do come down, expect the curve (10-2 years) to steepen.
