Oil prices pivotal to wider outlook

Our central scenario assumes that oil prices and food inflation drop back in the second half of the year, reducing the burden on real incomes and the upward pressure on interest rates. This may come too late to prevent one or two quarters of falling GDP in the US and UK, but it should at least avert a protracted downturn and give some hope to equities looking forward. However, if inflation remains high and central banks are unable to support either the real economy or the financial sector, the outcome would be a prolonged bear market.