Policy to anchor gilt yields and to buoy equities

As a protracted economic recovery from the coronavirus crisis will force the Bank of England to keep interest rates close to zero and further expand its quantitative easing programme, gilt yields will probably stay very low for many years. And although UK equity prices are unlikely to return to their previous highs soon, the prospect of economic recovery and exceptional policy support should allow them to continue to reverse their previous declines. UK equities may even outperform those in the US. The big threat to risky assets, though, is a second wave of the virus. And something like a no deal Brexit at the end of this year could hold back the recoveries in UK equities and the pound.