UK

We remain constructive on the UK; nothing fabulous of course, but something through expectations - all that counts in anticipating price change. This in spite of the recent IFS report which claimed the new growth policies “are really quite small.” Thank you very much sr research economist Hellen Miller but you couldn't find you way out of a wet paper bag.

After an earlier, satisfactory exercise, we recommended Nov/9 that clients once again own the term structure, the 5-10 spread then 108,  2-10 at 168 and 2-30 at 270. (There may be far more imaginative methods to work our view, yet the curve serves the purpose.) This spread did little at first, then expanded modestly, so that on Nov/29 levels were 118 and 180 but the 2-30, only 261.  Last, 120, 185, 268.

It is easy to criticize the administration. But in fact any surprises have been to the side of prudence, not profligacy, which includes eliminating public sector excess. (Indeed, we see that with traffic at Heathrow as “better than usual,” Border Agency types are about to meet the same fate as air traffic controllers under Reagan, who similarly thought they were somehow among the anointed.)

Finally, we believe there is much more to the UK consumer than most economists understand.

All of this supports our view.

UK strategies are to be set to the side of relative strength, not weakness.


Robert Craven