Economy and policy to provide a bit less support

The recent downward revision to our GDP growth forecasts and the recent hawkish signs from the Bank of England which prompted us to bring forward our forecast of when monetary policy will be tightened means the economic backdrop is a bit less conducive towards rapid gains in risky assets than we previously thought. Admittedly, we still think that the economic recovery will be healthier than most forecasters expect and that the Bank of England won’t tighten policy until a year after the mid-2022 date assumed by the financial markets. As such, we still expect the FTSE 100 to gain some ground on the S&P 500 over the next couple of years. And we think that by rising only modestly from about 0.60% now to 1.25% by the end of 2023, 10-year gilt yields will increase by less than 10-year US Treasury yields.