Our forecast that lingering price pressures will prompt the Bank of England to raise interest rates from 0.50% now to a peak of 2.00% next year suggests there is little scope for market interest rate expectations to rise further. Even so, we think that an increase in uncertainty about the outlook for inflation and interest rates as well as the influence of the Bank of England reducing its holdings of gilts via quantitative tightening will mean that 10-year gilt yields rise from 1.40% now to around 2.25% by the end of 2023. And as the make-up of the FTSE 100 means it is less exposed to higher interest rates, UK equity prices may outperform US prices and rise by more than 10% this year. That all said, the Russia/Ukraine conflict is reducing rate expectations, gilt yields, equities and the pound, and the risk is that this influence is not just short-lived.
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