Nomura: Policy Transmission: The Worst Is Yet To Come

Nomura write “according to various measures in the last year households and firms in the UK have suffered one of the largest shocks to their net worth in recent years. We want to emphasise that these wealth dynamics can play an important role in driving a recession, which we now forecast for the UK.”

• “While housing and equity wealth has deteriorated, we think more attention should be focused on pension wealth, which has declined sharply in real value terms. This will make it much harder for many to retire early and possibly increase the slack in the economy.”
• Housing wealth is important, but we think house price trends are lagged, and we are yet to see the biggest hit to wealth. On top of this, for a large share of the population central bank policy has no direct impact on their property net income.”
• “We find that corporations have felt the transmission effects of monetary policy more than households, which we think are on net no more worse off than since the hiking cycle began. This is in line with our analysis of monetary policy lags. There should be a clear turnaround in financial income, as mortgages are refinanced at higher rates.”
• “Therefore, based on our analysis we conclude that the worst is yet to come for UK households on aggregate. In this scenario, we may see policy rates come down as fast as they went up.”