While an improvement in appetite for risk has fuelled a strong start to 2023 by UK equities and sterling, we doubt this will remain a source of support as recessions in the US, the UK and the euro-zone economies take hold. We anticipate the FTSE 100 will fall from about 7,750 now to around 7,000 in mid-2023 (6,800 previously) and the pound will depreciate from $1.24 now to about $1.12 ($1.10 previously). That said, our view that the Bank of England will cut interest rates in 2024 further than investors expect explains why we expect 10-year gilt yields to decline by more than in the US, from 3.35% now to about 2.50% by the end of 2024. And it also underlines why we think there is scope for UK assets to outperform global assets from the middle of 2023. We expect the FTSE 100 to climb by about 20% from 7,000 in mid-2023 to 9,500 by the end of 2024 and the pound to rally from $1.12 to $1.25.
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