Markets to regain their poise as recoveries continue

While the resurgence in COVID-19 cases that has recently weighted on UK equities, the pound and 10-year gilt yields is clearly a downside risk, our view that it won’t deal a big blow to the global or domestic economic recoveries suggests that UK equities, the pound and 10-year gilt yields will all continue their latest rebound. That said, we have revised down our financial market forecasts. We no longer expect the pound to significantly strengthen or UK equities to drastically outperform overseas equities. And because we think the Bank of England will tighten monetary policy later than the financial markets assume, we now expect 10-year gilt yields to rise from close to 0.60% now to only 0.75% by the end of this year, to 1.00% next year and to 1.25% in 2023 (down from 1.25%, 1.50% and 1.50% previously).