Skip to main content

Markets mistaken on speed of rate hikes

Although the economic backdrop has recently become less favourable for UK asset prices, we expect that the economic recovery will regain some vigour in the second half of next year, that CPI inflation will fall close to the 2.0% target in late 2022 and that over the next two years the Bank of England won’t raise interest rates as fast or as far as investors expect. As a result, we expect 10-year gilt yields to rise from close to 0.90% now to only 1.50% by the end of 2023 and we think the FTSE 100 will climb from around 7,225 now to 8,000 by the end of 2023. Relative to our US forecasts, the rise in bond yields is smaller and the increase in equity prices is larger. That said, we are not expecting the pound to strengthen against either the dollar or the euro. In fact, the risk is that it weakens against both.

Become a member to read more

This is premium content that requires an active Capital Economics subscription to view.

Already a member?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to gain:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services


Get access