UK Domestic and Global Factors Driving Market Volatility

UK financial markets are facing significant volatility due to fiscal uncertainty, political leadership challenges, and aggressive central bank rate hike pricing. ANZ analysts argue that markets are overestimating future rate hikes, as economic slack is expected to contain the second-round effects of energy price shocks.

Key Takeaways

• 1.UK market volatility is being driven by a combination of fiscal slippage fears, rate hike expectations, and rising global yields.
• 2.Political instability is high following local election losses, with betting markets pricing a 74% chance of Prime Minister Starmer departing by year-end.
• 3.ANZ views the market pricing of 60bp of rate hikes through 2026 as aggressive, expecting the MPC to hold rates due to economic spare capacity.

Table of Contents

• Authors
• Contact
• UK: domestic and global factors driving up market volatility
• Political developments and fiscal risks
• Headwinds from the energy price shock
• Bottomline
• Important Notice

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