The relative outlook for US and UK markets

We think that both the Fed and the BoE are finished hiking interest rates and will cut by more than investors are discounting over the next couple of years. We also expect the US and UK economies to tip into mild recessions before long. These similarities help explain why we expect sovereign yields in both to fall by similar amounts over the next two years or so, and expect cable to trade broadly sideways, on net, over that period. But we think UK equities will underperform their US counterparts over that period.

In view of the wider interest, we are also sending this Asset Allocation Update to clients of the UK Markets service.