Signs that the economy has turned a corner support our view that interest rates won’t be cut from 0.75% this year. After all, the activity PMIs are no longer in the territory where rates have been cut by 25 basis points before. And they suggest that GDP growth rebounded to 0.3% q/q in Q1 after a probable 0.1% q/q decline in Q4. Of course, now that the UK has left the EU on 31st January, fears that it will trade with the EU on WTO terms from 2021 may linger large. But we think that both sides will take steps to prevent a disruptive change in their relationship at the end of 2020. And in the meantime, a loosening in fiscal policy will soon start to boost growth. That’s why we think GDP growth will beat the consensus forecast next year, by rising from 1.0% in 2020 to 1.8% in 2021, and why we think that the markets will be caught out by interest rates being higher than they expect.
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