The Intermediary – April 2025 - Flipbook - Page 50
SPECIALIST FINANCE
Opinion
What GDP growth means
G
DP growth is more
than welcome, but
global uncertainty,
tariff wars and
financial market chaos
is the bigger story for
investors. The UK economy grew by
0.5% in February 2025 – its strongest
monthly rise in nearly a year,
smashing consensus estimates of 0.1%,
with gains across manufacturing,
construction, and services.
It’s an undeniably positive sign
of domestic resilience, suggesting
that some sectors are acting
proactively ahead of trade warinduced uncertainty, that consumers,
buoyed by real wage growth, are still
spending, and that businesses, broadly
speaking, are simply geing on with
things – despite the Autumn Budget.
For property investors, however,
it represents just one piece of a much
more complex puzzle, and investment
decisions should not be rushed based
on this datapoint alone, particularly
given the rising geopolitical and
macroeconomic uncertainty.
Caught in the crossfire
While the recent GDP beat may offer
some reassurance – and provide the
Chancellor with a brief reprieve – it
remains a single, backward-looking
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The Intermediary | April 2025
datapoint. In fact, viewed in broader
context, monthly GDP has fallen more
oen than it has risen over the past
nine months.
With the UK exposed – albeit less
than some – to the growing threat of a
trade war, long-term borrowing costs
are spiking. Yields on 30-year gilts
have briefly touched 5.63% at the time
of writing – the highest level since
1998 – aer being swept up in a global
bond sell-off triggered by US tariffs
and escalating tensions with China.
Although they’ve since eased back to
around 5.50%, that still places them at
levels not seen in over 25 years.
The sell-off in 10-year gilts has
been less extreme, but yields remain
higher than they were in summer 2023
and autumn 2022. Elevated 30-year
yields reflect market expectations of
persistent long-term inflation and
signal that today’s trade tensions could
profoundly reshape global supply
chains. Meanwhile, higher 10-year
yields suggest growing investor
concern about the medium-term
impact on economic growth.
The Bank of England was even
forced to cancel a scheduled auction
of long-dated gilts – a clear sign of
mounting pressure in the market,
and a stark reminder of the risks
associated with locking in high-cost
HUGO DAVIES
is chief capital officer and
managing director for
mortgages at LendInvest
debt at a time when the UK economy
is grappling with the threat of
stagflation.
It looks like swap rates are going to
get caught in the crossfire – between
volatility in bond markets, where
bond yields are effectively seing
a de facto floor for swaps, and
expectations of a falling Bank Base
Rate, as reflected in market-implied
Sonia pricing.
Ironically, both are being driven by
the same backdrop: weaker global and
domestic growth and tightening fiscal
conditions.
Bond markets are under pressure
because investors expect Governments
