Financial conditions in the U.K. have settled into a groove that would be rivaled only by the late Charlie Watts.
The RSM UK Financial Conditions Index has moved to its highest level since 2014.
As a result of this stability, the RSM UK Financial Conditions Index in August moved to its highest level since 2014, reaching 1.1 standard deviations above levels of risk that are normally priced into financial assets.
Volatility in both the equity and currency markets has subsided, returns in the equity market are doing well, and the bond market is pricing in reduced risk of corporate default.
That all ties in with the increase in the spread between 10-year gilt yields and three-month money market rates, which have returned to non-crisis norms and suggest a positive outlook for the U.K. economy.
You could say that the Bank of England has provided the economy with the same stability needed to recover from the joint shock of Brexit and the pandemic that Watts gave to the Stones since “Gimme Shelter” in 1969.
This suggests that the high level of monetary policy accommodation and government efforts to maintain income streams have been successful. And it’s the market’s vote of confidence in the bank’s commitment to see the recovery through.
The resurgent coronavirus
Nevertheless, the world is still in a health crisis. Newly reported cases of infections in the U.K. increased over the past month, reaching more than 33,000 per day, according to data compiled by Worldometers.
According to the government, 88% of eligible people have received one shot, and 78% are fully vaccinated. Still, hospitalizations are increasing 6% and deaths are rising.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.