UK government bond yields increased sharply yesterday despite inflation falling to a 10-month low in January, signalling reduced expectations for a Bank of England rate cut in March and raising concerns about mortgage rate stability.<\/p>\n
Five-year gilt yields rose approximately 19 basis points, with 10-year yields up 14 basis points and two-year yields increasing 12 basis points. The movement reversed recent easing in borrowing costs and is expected to place upward pressure on mortgage rates.<\/p>\n
Nicholas Mendes, mortgage technical manager at John Charcol, noted that the outlook for the next Monetary Policy Committee meeting on 19 March remains uncertain. \u201cIn a fast-moving, unpredictable backdrop, the picture could look materially better by then, or it could deteriorate further. Either way, a near-term cut is now clearly less likely than it was even a week ago,\u201d Mendes said.<\/p>\n
He warned that even if current geopolitical tensions prove short-lived, the inflation trajectory would not automatically reset. \u201cThe medium-term issue is not just higher oil and gas prices, but the risk of disrupted supply and the knock-on effects that come with it,\u201d he added.<\/p>\n
Mendes identified supply chain disruption as the primary economic risk, noting that both sides in the current conflict have targeted energy infrastructure, following patterns observed during Russia\u2019s war in Ukraine. Qatar has reportedly halted some liquefied natural gas production after facilities came under attack.<\/p>\n
Approximately 80% of Qatar\u2019s LNG exports typically supply Asian markets. While LNG production can be shut down quickly, restarting operations takes roughly one month, extending the impact beyond immediate volatility.<\/p>\n
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The US primarily exports to Europe, but if Asian demand increases, cargoes can be redirected, potentially raising prices for European buyers immediately.<\/p>\n
Europe remains particularly vulnerable to gas supply shocks due to limited storage capacity and currently low inventories. Norway serves as a major supplier to both the UK and Europe, with flows into Europe linked via the UK, but the region maintains less buffer capacity than desired during supply disruptions.<\/p>\n
According to Panmure Liberum estimates, if oil and gas prices remain at current levels through the end of the year, UK inflation could increase by approximately 0.3% to 0.4%. While not catastrophic, this would complicate the path for rate cuts and encourage lender caution.<\/p>\n
Santander announced rate cuts yesterday that were likely approved last week before the latest yield increases. Mendes suggested that with uncertainty rising and wholesale funding costs increasing, lenders may adopt more defensive pricing strategies.<\/p>\n
\u201cIn practice, that can mean rates rising by more than the pure move in funding costs would justify, simply because lenders price in extra margin when visibility worsens,\u201d Mendes explained.<\/p>\n
The combination of elevated gilt yields, geopolitical uncertainty, and potential energy supply disruptions indicates a more challenging environment for mortgage rate reductions in the near term, with implications for both borrowers and the broader property market.<\/p>\n","protected":false},"excerpt":{"rendered":"
UK government bond yields increased sharply yesterday despite inflation falling to a 10-month low in January, signalling reduced expectations for a Bank of England rate cut in March and raising concerns about mortgage rate stability. Five-year gilt yields rose approximately 19 basis points, with 10-year yields up 14 basis points and two-year yields increasing 12 […]<\/p>\n","protected":false},"author":1,"featured_media":8989,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-8988","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-second-home"],"yoast_head":"\n