As the markets have not fully priced in the Conservatives winning the general election on 12th December and securing a Brexit deal, if that were to happen we suspect the pound would climb from $1.28 now to $1.35, 10-year gilt yields could rise from 0.76% now to 1.50% by the end of 2021 and domestically-focused equities would outperform the internationally-exposed FTSE 100. However, a surprise election victory for the Labour Party could result in the pound falling back to $1.25, gilt yields rising even further and equity prices declining. The common theme in both outcomes is that we think the markets are too complacent in expecting official interest rates to be no higher than 0.75% in a couple of years’ time.
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