Markets may be caught out on interest rates

We think the financial markets will be caught out this year by a decent acceleration in the quarterly rate of GDP growth preventing interest rates from being cut below 0.75%. And if we are right to assume that the UK and the EU will reach a fudge or compromise to prevent a major change in their relationship at the end of the year, then interest rates may even be raised to 1.00% next year. That’s why we think gilt yields will rise from 0.60% now to 1.25% by the end of next year, the pound will climb from $1.30 to $1.40 and UK equity prices will outperform their international peers.