The week ahead 13 January 2025 - Bond yields rise on inflation outlook
What to watch out for in the UK economy and property market this week.
UK gilts yields rose sharply last week, as investor concern continues to grow over global inflation risks. The ten-year gilt yield stood at 4.84% on Friday morning, up from 4.66% a week earlier. The volume of debt issuance announced at the last budget is a factor, although since the Trump election win in November gilt yields have closely tracked the upwards trajectory for US government bond yields. Investors are worried that Trump’s plans to impose tariffs on foreign goods will drive up inflation in America, which in turn will reverberate around the world.
It should be remembered that financial markets are volatile currently ,and sentiment on inflation and bond yields could shift quickly if after taking office on 20th January the new President softens his line on tariffs. However, if the current situation continues, the UK government could find itself caught between less than expected tax revenue due to the recent economic slowdown, and higher debt costs. From a property perspective, market interest rates are rising again, which could mean some investors with dry powder remain on the sidelines for a while longer while events in the economy and financial markets play out.
Last year saw the UK clear several green milestones according to data from National Energy System Operator. For the first time ever the largest single source of British electricity was wind power at 30% based on full year figures, overtaking gas at 26% (down from 32% in 2023). Wind also saw its highest ever single day, accounting for 68% of the grid’s electricity on 18th December. Coal accounted for just 0.6% of power in 2024, down from 1.0% in 2023 and 6.6% in 2013. Around 51% of UK electricity came from zero carbon sources last year. The news emphasises the growing importance of renewable energy, and wind power in particular, to the UK economy.
This week sees the release of inflation, GDP and retail sales data for the UK, and any downside surprises might further knock both consumer and business confidence. There has been a shortage of good news on the economy lately, and sentiment could use a boost. The retail sales figures may be harder to interpret than usual, as Black Friday weekend falling partly in December may have distorted the figures. However, trading statements so far from major retailers point to robust year-on-year growth, suggesting the sector may have seen an upbeat finish to the year.
This week's figures
WEDNESDAY 15 JANUARY
UK CPI Inflation, y-on-y, December
2.6% previous
2.6% forecast
We believe that recent energy price pressures are easing, given that petrol fell in price during December. So, we are forecasting inflation to stabilise at 2.6%.
THURSDAY 16 JANUARY
UK GDP, m-on-m, November
-0.1% previous
0.1% forecast
After two consecutive months of contracting GDP on a monthly comparison, we are forecasting the economy returned to growth in November, but at a subdued pace.
FRIDAY 17 JANUARY
UK Retail Sales, y-on-y, November
0.5% previous
2.1% forecast
The figures from the British Retail Consortium for December pointed to an increase, in part thanks to some of Black Friday weekend falling in December in 2024. Consequently, we are predicting a rise in December retail sales volume.
