June 2019

June 2019


UK politics seems to be getting even more binary, but at least we’re starting to see a bit of gallows humour emerging. The Financial Times drew a somewhat amusing analogy to Monty Python’s Spam café in relation to the forthcoming Conservative leadership election as involving “13 dishes all of which contain Brexit … you can have Brexit with optimism or Brexit without”. And one doesn’t have to look too far to see the occasional sarcastic reference to Jeremy Corbyn’s leadership style / qualities (take your pick).

This at least made me think of a couple of my favourite “literary” (loosely speaking) quotes – which seemed on closer inspection to boil down to some Douglas Adams one(ish)-liners which I think should provide great inspiration for manifesto quotes for any of the candidates who have not yet put pen to paper:

“I’d far rather be happy than right any day.”


“If there’s anything more important than my ego around, I want it caught and shot now.”


“Let’s think the unthinkable, let’s do the undoable. Let us prepare to grapple with the ineffable itself, and see if we may not eff it after all.”

The hope in the choice of our next political leader is surely that we get someone who is able to construct and hold together a narrative which the country as a whole (or perhaps more realistically, a broad majority) can buy into. That does involve effective communication. Whether or not one thinks Theresa May had basically the right idea with the withdrawal deal, she was running out of credibility with pretty much everyone and communication was a clear weak spot.

Turning to the markets, most stock markets including the FTSE have generally been drifting down over the last month or so but even with the slight warming up of the trade war between US and (mainly!) China there has been no major drama. Nonetheless there has been plenty of market comment on the potential signs of issues to come, including the inversion of the US yield curve – negative spread between the 3-month and 10-year rate – and the general drift downwards also in swap and gilt rates; GBP underlying rates are struggling to poke above 1.5% now at any point on the yield curve. It still surprises us how little hedging activity we are seeing and we would reiterate the gentle nudge given in many client discussions that the costs of hedging interest-rate risk are at historically low levels.

This may be reflective of the fact that longer term fixings are now largely catered for through long term borrowing in the institutional market. The latest RSH quarterly survey has underlined the rude health of the funding market for housing associations in showing that the sector raised a record £4.5bn in Q1 of 2019, including £2.3bn from capital markets and £2.1bn from banks. During the 2018/19 financial year, the sector raised a record annual amount of £13.5bn. The survey also showed £20.8bn of undrawn facilities across all HAs and cash balances of £6.1bn.

The survey also highlighted increases in sales receipts to £1.5bn, a near high over the last three years and with sales volumes forecast to increase over the next 18 month, highlighting the continued need for HAs involved in this activity to carry high levels of accessible liquidity.

In the coming month we will be seeing English housing associations finishing off their business plan submissions to the regulator, and most housing association clients getting to grips with the first few months’ performance against the budget for a new financial year. That often goes hand in hand with firming up views on what to prioritise over the rest of the summer in terms of treasury ‘actions’.

As ever, please get in touch if we can provide a useful sounding board for issues, including beyond core topics of financing and treasury risk management.


Financial Markets and Economics Overview

UK economy data released last month portrayed a stable and resilient economy that withstood the Brexit uncertainty in the first quarter of 2019. However, following Theresa May’s resignation announcement, the increasing probability of a no deal Brexit and the Brexit Party’s victory in the European Parliament elections in the UK, greater volatility was seen in the financial markets, as political tensions increased towards the end of the month.

UK GDP grew 0.5% in the first quarter, an increase from 0.2% in the last quarter of 2018. Most notably, the manufacturing sector had expanded at its fastest rate in the first quarter of any year since 1988 due to firms rushing to deliver orders before the UK was supposed to leave the EU at the end of March. UK unemployment continued its healthy trend in the three months leading to March, as it fell to a record low level since 1974 to 3.8%. With nearly 100,000 jobs being added in the first quarter of 2019, the labour market appeared strong. However, there were some early signs of a softening and tightening labour market as the increase in jobs was slightly below forecasted levels and nominal earnings growth decreased slightly to 3.2% from 3.5%. Nevertheless, unemployment figures indicated that the labour market had been handling the Brexit uncertainties well in the first quarter of 2019.

April’s inflation figure of 2.1% also signalled a strong economy, as it increased to just above the 2% target set by the Bank of England. The increase from 1.9% in March was caused by a rise in gas and electricity prices and hence core inflation, which excludes energy, food and alcohol, declined from 1.9% to 1.8% over the same period. Compared to 2017 and 2018, UK inflation has mainly been increasing due to factors such as increasing energy wholesale prices rather than currency depreciation. However, the pound fell below $1.26 for the first time since January’s Brexit tensions and further declines in the pound could be possible due to the political events from last month.

Financial markets have continued to reflect the political uncertainty. This can be seen through rates movements, with Gilt yields across the entire curve decreasing significantly since April. From 30th April 2019 to 31st May 2019, the 5 year Gilt yield decreased by 26bps to 0.66% and the 30 year Gilt yield decreased by 20bps to 1.49%.

UK government borrowing was in line with expectations of £5.8bn in April and tax receipts were 2.4% higher than in April 2018.  The Nationwide House Price Index growth however slowed to 0.6%, suggesting that consumer confidence remained subdued.

Interest Rates


Capital Markets

Bank Credit