Our forecasts that the Bank of England won’t tighten monetary policy until much later than the markets expect and that when it does it will unwind some QE first (perhaps in 2024) before raising interest rates (perhaps in 2025) is consistent with the gilt yield curve steepening over the next couple of years. So while 2-year gilt yields will probably remain very low for a couple more years yet, 10-year yields may rise from 0.86% now to around 1.50% by the end of 2022. We suspect that the resulting drag on the future value of UK corporate earnings will be more than offset by the boost to earnings from a faster and fuller economic recovery than is widely expected. And given that the valuation of UK equities still appears attractive, there is scope for UK equities to rise more rapidly than equities in other major markets. Our forecast is that the FTSE 100 climbs from 7,000 now to around 8,250 by the end of 2022.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
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