Breaking News
Investing Pro 0
Cyber Monday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

Confidence in UK assets on thin ice, investors warn - Reuters poll

Economic Indicators Sep 21, 2022 11:12
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: New British Chancellor of the Exchequer Kwasi Kwarteng walks outside Number 10 Downing Street, in London, Britain September 6, 2022. REUTERS/Toby Melville/File Photo

By Andy Bruce

LONDON (Reuters) - Investor confidence in British assets sits on the edge of a precipice as new finance minister Kwasi Kwarteng readies his first fiscal update, a Reuters poll of bond strategists and economists showed on Tuesday.

Kwarteng is due on Friday to outline his plans to support households and businesses through the coming winter, an event investors say will be a critical test of confidence in Britain's economy and public finances.

Slightly more than half - 55% - of the international banks and research consultancies polled by Reuters last week said there was a high risk confidence in British assets would deteriorate sharply in the coming three months.

Fifteen out of 29 respondents said the risk was high, including three primary dealers of British government bonds. One said the risk was very high. The remaining 13 said the risk was low.

While currencies all over the world have fallen against a surging dollar and rising inflation has hammered government bonds prices everywhere, Britain has suffered worse than most.

The pound lost 7.0% of its value against the dollar during the three months to Tuesday, one of the worst performers of 10 major currencies.

Ten-year government bond prices have fallen much further in Britain over the same period than in France, Germany, Italy and the United States - something that cannot be explained away by currency movements alone.

These shifts in part reflect investors' worry that Britain's reliance on imported energy will leave it exposed to higher inflation for longer.

But there are also doubts about the economic agenda of new Prime Minister Liz Truss, who has announced a hugely expensive plan to subsidise energy bills in combination with tax cuts - policies which have yet to be costed.

"Trust is fleeting... and Truss would be wise to reassure markets that she has a plan to pay for these expenditures," said Rabobank strategist Bas Van Geffen.


Kwarteng, appointed as chancellor of the exchequer this month, has defended the new government's plans, saying Britain has more room to borrow than other countries that have a higher share of public debt to economic output.

Kick-starting growth is the best way to get stronger tax revenues which will restore the public finances over the medium term, he says - although some economists warn this approach recalls the ill-fated, inflationary policies of the 1970s.

"There has already been a clear deterioration in investors' outlook on the UK, so the bar for further sharp deterioration is high," said Adam Dent, strategist at Santander (BME:SAN).

"But the new, inexperienced government faces great challenges and could easily make missteps which add to investors' concerns."

British assets endured a bruising August - sterling fell 4.5% that month, now trading around levels last seen in 1985, and the 10-year gilt rose more than 100 basis points.

Some respondents pointed to a difficult global economy and said Britain was not alone in its challenges.

"We see investor sentiment looking frail across many regions and asset markets. Nonetheless, the UK does look a little more vulnerable than most," said James Knightley, economist from ING.

The poll suggested the 10-year British government bond yield - which touched an 11-year high of 3.292% on Tuesday - could be close to a peak, with the median forecast pointing to a move below 3% in three months' time.

"We believe monetary policy tightening, particularly in the U.S., could be rapidly reversed through the second half of 2023, prompting a plunge in longer dated yields next year," Dent from Santander said.

Still, 86% of forecasters - Dent included - said the risks to their yield forecasts for global government bonds were skewed to the upside. [US/INT]

"If higher inflation becomes a more structural phenomenon... yields could also turn out to be structurally higher," Rabobank's Bas Van Geffen said.

(For other stories on major government bond yields and money market rates:)

Confidence in UK assets on thin ice, investors warn - Reuters poll

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email