Core Insights - The Bank of England has been in a rate-cutting cycle for a year, yet households are facing the highest borrowing costs in a generation, leading to a significant reduction in overall spending [1] - Total annual spending by UK households has decreased by £11 billion (approximately $14.5 billion) compared to July of the previous year [1] - The decline in spending is attributed to reduced savings returns due to lower interest rates and many homeowners not yet benefiting from the rate cuts due to existing high-rate mortgage agreements [1] Group 1 - The Bank of England has cut interest rates four times in the past year, but the impact on consumer spending remains limited [1] - The reduction in household spending is primarily due to the negative effects on savers and the delayed benefits for mortgage holders [1] - Economic conditions such as stagnant real wage growth and tightening fiscal policies are expected to continue suppressing consumer spending in the coming years [1]

Core Viewpoint - The number of mortgage applications in the U.S. has significantly decreased due to persistently high borrowing costs, reaching the lowest level since late May [1] Group 1: Mortgage Application Trends - The Mortgage Bankers Association (MBA) reported an 11.8% drop in the mortgage application index for the week ending July 11, marking the largest decline since 2022 [1] - This decline follows a 9.4% increase in the previous week, which included the Independence Day holiday, indicating volatility around holiday periods [1] Group 2: Refinancing and Interest Rates - The refinancing mortgage application index fell by 7.4%, after reaching its highest level since April in the prior week [1] - The contract rate for a 30-year fixed mortgage slightly increased by 5 basis points to 6.82% [1] Group 3: Economic Implications - Economists suggest that the ongoing high borrowing costs are constraining affordability, and a decrease in financing costs is crucial for stimulating the real estate market [1]

Core Viewpoint - The UK stock market remains troubled despite the Labour Party's political stability and investment opportunities, with the FTSE 100 index only rising 7% compared to 17% to 27% gains in Germany, Spain, and Italy during the same period [1] Group 1: Economic and Market Conditions - The current growth momentum in the UK is fragile, with market skepticism about the Labour Party's ability to stimulate economic growth without increasing fiscal pressure [1] - Expectations of tax increases or expanded government borrowing are rising, prolonging pressure on the UK bond market [1] - The Bank of England's cautious stance on interest rate cuts contributes to ongoing investor doubts about the UK economy and stock market outlook [1][4] Group 2: Valuation and Investment Sentiment - The FTSE 350 index's price-to-earnings ratio has increased from 11.4 to 13, but it remains about 35% cheaper than the MSCI global index, making it one of the cheapest stock markets among developed markets [4] - Further valuation increases depend on improved earnings growth, which is hindered by high borrowing costs [4] - The market anticipates only three interest rate cuts from the Bank of England over the next year, with rates expected to remain at 3.5%, double that of the Eurozone [4] Group 3: Currency and Earnings Impact - The upcoming earnings season will be critical for assessing whether companies can overcome the headwinds from rising interest rates [8] - The significant appreciation of the British pound, which has risen 9.3% against the US dollar this year, may impact earnings, as approximately 75% of FTSE 100 companies' revenues come from overseas [8] Group 4: Broader Market Challenges - The UK market faces additional challenges, including liquidity issues, excessive regulation, and low domestic investor appetite for equities [11] - The trend of companies considering relocating their listings is contributing to the shrinking size of the UK stock market, with AstraZeneca reportedly evaluating a move to the US [11] - Institutional investor sentiment remains negative, with global investors reducing their holdings in UK assets by 4% as of June, and Citigroup downgrading the UK's rating from "overweight" to "neutral" due to weak earnings growth and less attractive valuations [11]