The stability of UK financial markets ahead of the UK general election is striking when compared to the sharp moves in French asset prices ahead of the French legislative elections. It’s probably because the UK election result isn’t in doubt and the fiscal policies of Labour are little different from the Conservatives, while the outcome of the French elections is uncertain and there is a possibility of much looser fiscal policy. The markets are still being driven by the economics and the outlook for interest rates. Our forecast that UK interest rates will decline from 5.25% to 3.00% by the end of 2025, rather than to 4.00% as investors expect, explains why we think 10-year gilt yields will continue to fall from 4.15% now to 3.50% later this year.
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