Mortgage interest rates have fallen to record lows as Bank of England mulls over the possibility of an interest rate cut. Earlier in the year mortgage rates had risen as banks and building societies scrapped some of the best deals on offer because they expected the Bank of England to start raising interest rates. Since then, however, forecasts for an interest rate rise have been pushed back, and some Bank of England officials have even discussed the possibility of a cut to the base rate to below its current 0.5% level. As a result, mortgage rates are once again falling.
The Organisation for Economic Co-operation and Development (OECD) has slashed its forecast for UK growth to 1.7% from 2.1% as it believes that fears that Britain might leave the EU have already undermined growth. The OECD has forecast that UK economic growth would be 3.0% lower than it would be if we remain in the EU – the equivalent of £2,200 less per household. However the report acknowledges that the UK economy is likely to continue to grow if the ‘Leave’ campaign is successful.
However, an Ipsos-Mori poll taken last week has revealed that nearly two-thirds of voters (58%) believe Brexit would make no difference to their standard of living. Just 22% think that it would hit them in the pocket, while 11% think that it would make them better off. A 56% majority expect direct investment from the EU into the UK to fall, and 46% expect UK exports to the EU to drop.
Activity in the UK’s dominant service sector picked up last month, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI) but growth remained subdued. The index rose to 53.5 in May from 52.3 in April. A figure above 50 indicates expansion. More than a third of firms said they had suffered from the uncertainty over the EU referendum. Markit expect the economy to grow by 0.2% in the second quarter of 2016 which would be down from the 0.4% growth recorded in the first three months of the year.
Other PMI surveys released last week indicate that the manufacturing sector edged back into growth during May while activity in the construction sector continues to slow. Markit chief economist, Chris Williamson, said: “growth has collapsed in manufacturing and construction, leaving the economy dependent on the service sector to sustain the upturn, though even here the pace of expansion has remained frustratingly weak so far this year.”
A flurry of data from China in coming weeks is expected to reinforce views that the world’s second-largest economy is slowly steadying but not gaining momentum as investors had hoped just a few months ago, a Reuters’ poll of economists has revealed. Increased government infrastructure spending and a housing recovery are supporting growth even as Beijing appears to be pulling in the reins on a record credit binge amid worries about the dangers of using too much debt to stimulate the economy. Though investors’ fears of a hard landing have ebbed, concerns remain that Beijing has not moved fast enough on key reforms, such as cutting excess capacity, while debt continues to rise and the yuan currency comes under pressure.
The U.S. economy created the fewest number of jobs in May in more than 5-1/2-years as manufacturing and construction employment fell sharply, which could make it harder for the Federal Reserve to raise interest rates in June. Non-farm payrolls increased by only 38,000 jobs last month, the smallest gain since September 2010. Underscoring the job creation weakness was the fact that employers hired 59,000 fewer workers in March and April than previously reported. While the unemployment rate fell three-tenths of a percentage point to 4.7% in May, the lowest level since November 2007, this was due to 458,000 Americans giving up the search for work.
|5-YEAR CDS SPREADS AND SHARE PRICES|
|Date:||6th June 2016|
|5-Year CDS Spreads (bps)||Equity Share Prices (LCL)|
|Parent: Aldermore Group plc|
|Aldermore Bank plc||n/a||n/a||n/a||2.15||2.20||-2.3%|
|Allied Irish Banks||62||64||-3.1%||6.80||6.90||-1.4%|
|Parent: Arbuthnot Banking Group plc|
|Arbuthnot Latham & Co.||n/a||n/a||n/a||15.25||15.42||-1.1%|
|Aust and NZ Banking Group Ltd||90||96||-6.3%||25.09||25.85||-2.9%|
|Banco Bilbao Vizcaya Argentaria S.A.||129||119||+8.4%||5.71||6.06||-5.8%|
|Parent: Barclays plc|
|Barclays Bank plc||109||101||+7.9%||1.80||1.86||-3.2%|
|BNP Paribas S.A.||84||78||+7.7%||46.32||49.77||-6.9%|
|Parent: Close Brothers Group plc|
|Close Brothers Limited||n/a||n/a||n/a||13.08||13.58||-3.7%|
|Credit Agricole S.A.||80||75||+6.7%||8.65||9.09||-4.8%|
|Parent: Credit Suisse Group AG|
|Credit Suisse AG||129||125||+3.2%||20.88||20.13||+3.7%|
|Deutsche Bank AG||169||162||+4.3%||15.00||16.29||-7.9%|
|Parent: HSBC Holdings plc|
|HSBC Bank plc||94||86||+9.3%||4.45||4.48||-0.7%|
|Parent: ING Groep N.V.|
|ING Bank N.V.||72||67||+7.5%||10.84||11.38||-4.7%|
|Intesa Sanpaolo S.p.A.||124||115||+7.8%||2.21||2.36||-6.4%|
|Parent: Investec plc|
|Investec Bank plc||n/a||n/a||n/a||4.55||4.87||-6.6%|
|Parent: Lloyds Banking Group plc|
|Lloyds Bank plc||90||84||+7.1%||0.70||0.72||-2.8%|
|Metro Bank plc||n/a||n/a||n/a||22.19||22.19||0.0%|
|Nationwide Building Society||78||76||+2.6%||n/a||n/a||n/a|
|Nordea Bank AB||63||58||+8.6%||80||82||-2.4%|
|Parent: RBS Group plc|
|Royal Bank of Scotland plc||120||109||+10.1%||2.37||2.51||-5.6%|
|Ult. Parent: Banco Santander S.A.|
|Santander UK plc||78||75||+4.0%||4.05||4.40||-8.0%|
|Shawbrook Group plc||n/a||n/a||n/a||2.88||2.95||-2.4%|
|Parent: Standard Chartered plc|
|Standard Chartered Bank||150||141||+6.4%||5.27||5.42||-2.8%|
|Svenska Handelsbanken AB||63||58||+8.6%||103||108||-4.6%|
|FTSE 350 BANK INDEX||n/a||n/a||n/a||3302||3380||-2.3%|
|SNR FIN ITRAX CDS 5-YEARS||95||90||+5.6%||n/a||n/a||n/a|