The week ahead 01 June 2026 - Bond yields decline as risks ease
What to watch out for in the UK economy and property market this week.
Last week saw evidence emerge of growing demand for UK government bonds, despite the ongoing political uncertainty at Westminster.
10-year gilt yields declined to 4.81% on Friday afternoon, down from a peak of 5.18% on 15th May. Bond yields move inversely to prices. Other major economies have also recorded a slide for bond yields in the last week, although on the UK, investors have been reassured by statements from Labour Party leadership contender, Andy Burnham, that he will observe the government’s fiscal rules. Also, last week saw the government hold two gilt sales, both of which recorded cover of over four times, i.e. for every £1 of bonds on sale, more than £4 was bidding.
This rebound for gilts should help improve debt pricing for the UK property sector, although we do expect bond yields to remain volatile until the issue of the Labour Party leadership is settled. Pundits have suggested the party would probably want a new leader in place by the time of their annual conference in late September.
Ofgem has announced its price cap on UK energy bills is set to increase by 13%, which will push up inflation this summer. Around 40% of households are on fixed tariffs, so this will soften the impact on household finances. According to a survey by the Treasury, City economists now expect UK inflation to reach 3.6% this year. While above the Bank of England’s 2.0% target, this is still well below the levels seen during the 2022 energy price shock, when inflation exceeded 11%.
In a blow for the White House, US GDP growth for Q1 was revised downwards from 2.0% in the first estimate to 1.6% in the second. This was partly due to a cut in the data on consumer spending, as households faced a sharp rise in petrol prices in March. Business investment in artificial intelligence accounted for a large share of the growth recorded in US GDP in Q1.
This week sees data released on UK mortgage approvals and the US labour market.
Initial evidence suggests that UK housing market demand and pricing has held up reasonably well in recent months, despite the war and a decline in consumer confidence. Nevertheless, we would be surprised if higher mortgage rates has not deterred some potential buyers in April, a month when consumer confidence was relatively low. Plus, banks may have been more conservative in lending due to the uncertainty in the financial markets lately.
The US labour market is facing multiple headwinds, with GDP growth weakening and the Middle East war pushing up energy prices for firms. We believe the latest payrolls figures will show the pace of job creation slowed in May.
This week’s figures
TUESDAY 2 June
UK Mortgage Approvals, April
63.5k PREVIOUS
62.4k FORECAST
Home loan approvals held up remarkably well in March, despite the hike in mortgage rates. However, higher debt costs and weaker consumer sentiment persuade us to forecast a modest decline in April.
FRIDAY 5 June
US Non-farm Payrolls, May
115k PREVIOUS
100k FORECAST
With rising inflation pushing up costs for firms, and GDP growth weaker than previously assumed, we are predicting the US jobs market decelerated in May.
