Growth worries starting to build

UK markets appear to have become less optimistic over the outlook for the economy against a background of an uncertain global environment, surging oil prices, high and rising inflation and the threat of monetary tightening. UK equities have under-performed overseas markets, while bond yields have recently reversed some of their previous upward movement. And while the pound remains strong against the US dollar, this largely reflects the relative hawkishness of the Bank of England compared to the US Fed, rather than solid domestic growth prospects. If we are right in expecting the UK economic recovery to disappoint, then markets’ growth worries are likely to continue to build, putting further downward pressure on equities and bond yields.