- After a dismal couple of years for the UK economy, we expect to see a big improvement this year in both absolute and relative terms.
- Inflation has been higher than in comparable countries, partly reflecting factors specific to the UK. These effects are diminishing and should drop out in the next 6 months or so.
- The labour market is no longer super tight and the wage price spiral is operating in reverse. Five-year swap rates have fallen heavily and this is feeding through into lower mortgage rates.
- Lower inflation and lower interest rates are improving confidence and boosting spending in a virtuous cycle. It’s improving the budget deficit too.
- This is all good news for UK financial markets but there’s a lot priced in already. Nevertheless, we see a favourable background for the UK. No boom but better than we’ve seen of late, better than consensus expectations and possibly better than other countries.