Investors do a u-turn on rate hikes

Investors have reassessed the outlook for UK monetary policy over the last month and have gone from expecting rate hikes at the start of May to expecting cuts now. This is partly because of a weakening global outlook and mounting expectations of rate cuts in the US and euro-zone. However, it is also because of rising concerns about a no deal Brexit. Indeed, we think that if there were a no deal, then the Bank of England would quickly cut interest rates, despite its rhetoric that rates could move in either direction. Concerns about a no deal have also weighed on sterling, which briefly hit its lowest level this year. But a weaker pound and expectations for looser monetary policy have supported equities.