
Panic First, Think Later
It’s a very busy time in financial markets. Aside from the daily twists and turns of the Trump presidency, we have lots of macro data, company results and central bank interest rate decisions to keep on top of. I also want to update you on energy prices and bond yields, which I think are also especially important right now.
I won’t bore you with all the corporate news, but I will try to report things that I find interesting. I wrote yesterday about the US macro data and will update you next week on the interest rate decisions that the FED and MPC will announce.
As for today, one thing stood out to me from the array of Q1 announcements, which I think highlights the point I have repeatedly made since Liberation Day on the 2nd of April: financial markets massively overreacted and once again made the wrong initial judgment.
The original announcement not only spooked financial markets, it also unnerved corporate executives and politicians, who unfortunately appear to believe that financial market movements always convey some kind of profound economic insight. Take, for example, what Lloyds Bank said today in its Q1 results. Lloyds, as you probably already know, is the UK’s largest mortgage lender and is almost exclusively a UK business. In the management statement, after highlighting its strong financial performance, growing income, cost discipline, resilient asset quality, and robust outlook for 2025 and 2026, the Bank states in the asset quality commentary, that in what is objectively still a very low impairment charge, there was a £100mn “adjustment” to reflect downside risks associated with the potential impact from US tariff policy. It appears that this decision was taken close to the balance sheet date (end March), or, in other words, in the midst of the markets’ initial panic.
Although Lloyds has, I am sure, a highly professional team and a very sophisticated UK economic model, this conveniently round number was a guess that the financial market hysteria at the time would have informed. My judgment, then and now, is that Trump’s tariffs would have no discernible impact on the UK economy at all. Consequently, if I had been charged with updating Lloyds’ impairment decision at the time, I would have said there should be no change based on the tariff announcement. Surprisingly, this put me in the Rolls-Royce camp, which also announced its Q1 results today.
Unlike Lloyds, Rolls is a very international business with significant exposure to the US economy and US customers. Possibly because it has had a few weeks to finalise its decision-making on Trump tariffs, the CEO said the following today:
- The business was confident about meeting its 2025 profit targets despite the uncertainty caused by US tariffs.
- Rolls expects to offset the impact of announced tariffs on the business through mitigating actions the business is taking.
And as a result, there is no change in the company’s guidance to analysts that follow the business.
These two examples highlight the varied responses in corporate boardrooms to Trump’s tariffs. Lloyds, which in my mind should be completely immune from them, took a precautionary £100mn further “charge” and Rolls-Royce, a global aerospace business, said, pretty much, business as usual.
If I were a betting man, I would say that in the not-too-distant future, Lloyds will write back its additional £100mn charge that it announced today.
Bond yields
In the gilt market, ten-year yields continue to fall, as they are across shorter maturities and indeed across other developed economy bond markets. In the UK, ten-year yields at 4.42% are now lower than at any point in 2025 and, in my view, will fall further. My guess is that in twelve months’ time, they will be close to 3.5%. (In the OBR’s updated forecasts from March, they have ten-year yields rising steadily through the remainder of this decade to 5.25% by the end of 2029 – see below. This looked odd at the time and now looks way out).

Interestingly, the two-year gilt yields 3.8%. That should be equivalent to the average base rate over the same period, which is currently 4.5%. By implication, two-year gilts suggest significant further falls in base rates.
Energy prices
Energy prices, too, keep falling, in direct contrast to the OBR’s odd expectations. At the end of March, the OBR said that it expected wholesale gas prices to peak at 130p per therm in what was left of 2025 and that oil prices would average $74 per barrel for the remainder of the year.
As you can see in the chart below, wholesale gas prices are trading at 76.4p per therm, and the oil price (Brent crude) is at $63.2 per barrel. Both commodity markets are volatile, but these OBR forecasts looked odd back in March and look pretty silly now. (I said so at the time)

To complete the picture, the chart below shows the Brent crude price in sterling. What it shows is that since the peak in mid-January at nearly £68 per barrel, the price has fallen by over 30%

This must mean that the MPC and OBR forecasts for inflation in the UK through the remainder of 2025 are way too high, as I have repeatedly said. Consequently, I expect the MPC to get on with cutting rates. The May meeting is next week, and I hope the committee will cut by 50bps. 25bps is probably more likely, but you never know. If they do the right thing, this will help the domestic economy to deliver the sort of growth I am expecting this year and will have all kinds of helpful knock-on effects in the household sector and the property market in particular.
UK housing market
This week, Persimmon, one of the UK’s largest volume housebuilders, provided an update on current trading in its annual AGM statement. In a generally upbeat commentary, the company announced that its current forward sales were up 12% on the same period last year, whilst its private sales (excluding bulk sales) were up 17%. Its private average selling price was up 4% at £293,300. Overall, the company is trading in line with the board’s expectations, but importantly, customer interest remains strong across the country.
Interestingly, and not surprisingly in my opinion, the business also states that current “macroeconomic uncertainty” has had no impact on the business or its supply chain. Once again, this highlights how wrong the market was in early April when the share price fell 11% on the back of Trump’s tariff announcement.
This is an encouraging statement because it clearly points to an improving trading environment ahead of what I expect will be a fairly rapid decline in base rates, a process which will kick off next week.
Another large UK housebuilder, Taylor Wimpey, has also released its Q1 trading statement this week. Like Persimmon, TW has reported that the business is performing in line with management’s expectations and that the Spring selling season is doing likewise. Although the commentary is relatively cautious, there is no indication that the tariff issue is affecting the business in any way.
On top of these company-specific statements, some new data has also been released on the mortgage market. This data set shows that total mortgage lending increased significantly in the first quarter of 2025, effectively doubling to £20bn after a prolonged period of weakness following the huge increases in interest rates in 2022 and 2023. Mortgage approvals also increased, as did housing transactions, which were up significantly in March ahead of the rise in stamp duty. This huge increase shown in the chart below probably means that transactions will fall back in April and May, but the underlying backdrop for the housing market is clearly improving significantly.

The market panic triggered by Trump’s tariff announcement continues to look increasingly absurd. Lloyds Bank — which has little to no exposure to the US — took a £100mn impairment charge “just in case” based on that moment of hysteria. Rolls-Royce, by contrast, said the impact was manageable and left its guidance unchanged.
Bond yields are falling across the curve, and I expect the 10-year gilt yield to settle near 3.5% within a year — a far cry from the OBR’s odd forecast of 5.25%. Two-year yields now sit well below base rates, implying cuts are coming. Energy prices have also moved sharply lower, again undermining the OBR’s inflation forecasts.
Taken together, these developments point to a UK economy that looks much healthier than the consensus narrative would suggest. The housing market is already responding. Persimmon reports rising sales and prices, and Q1 mortgage lending has doubled, with approvals and transactions also up sharply.
The Bank of England meets next week. A 50bps cut would be welcome — and justified. A 25bps move is more likely. But either way, the case for lower rates is growing stronger by the day.
Related posts

Subscribe to receive Woodford Views in your Inbox
Subscribe for insightful analysis that breaks free from mainstream narratives.