• International Financial Outlook Report – June 2017

    Summary of forecast changes

    • Our forecasts are broadly unchanged this month, but we are watching closely domestic political developments and any impacts they might have on policy and the economy. We still see no change in UK Bank Rate over the forecast horizon to mid-2019. While above-target inflation is concerning some MPC members more than others, ultimately we believe a gradual deceleration of growth and rising consumer caution will result in eventual weaker inflationary pressures once the pass-through from previous falls in the pound abates.
    • We maintain our expectation of one further US Fed rate rise this year in September, although policymakers will be watching for confirmation that the economy evolves as expected. In light of recent data, the risk that the next hike is delayed to December has risen. The Fed also seems likely to start unwinding its balance sheet this year, potentially as early as September. For the ECB, we expect asset purchases will continue at €60bn a month until the end of the year, with the pace likely to be reduced next year. Our central view is that the ECB will not raise interest rates until late 2018.
    • Our euro forecast for this year has been nudged higher, with EUR/USD now at 1.14 (up from 1.12) at end-2017, but left unchanged at 1.18 at end-2018. We have left our forecast for the pound against the US dollar unchanged at 1.30 for end-2017 and marginally lower at 1.34 at end- 2018. Our GBP/EUR projection is lower at 1.14 (from 1.16) at end-2017 and unchanged at 1.14 at end-2018.
    • We have revised down our end-2017 targets for benchmark 10 year bond yields for the US, UK and Germany to 2.3%, 1.2% and 0.4%, respectively, and they are forecast to rise further in 2018.

    Read the full International Financial Outlook Report for June 2017.

    Read the previous International Financial Outlook Report for May 2017.