We haven’t changed our forecast that the Bank of England will raise interest rates from 1.25% now to a peak of 3.00% by the middle of next year. But we do now think that a number of other central banks will raise interest rates faster and to higher levels to try and get on top of inflation. As a result of these global factors, we now think that 10-year gilt yields will rise from 2.35% currently to a peak of 3.00% by the end of this year rather than to 3.00% by the middle of next year. We also think the FTSE 100 will fall from 7,050 now to a trough of around 6,600 by the end of next year (rather than to a low of 6,800 by the middle of next year). In other words, rises in global interest rates and the toll they will take on activity will result in the prices of gilts falling faster and UK equity prices falling further and for longer.
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