• International Financial Outlook Report – April 2018

    Summary of forecast changes

    • We maintain our forecast for UK interest rates to rise by a quarter point to 0.75% in May, with a further increase to 1% in November. Activity in some sectors may have been affected by the unusually cold weather, but underlying economic sentiment has held up. Headline CPI inflation is likely to have peaked, but the path back to the 2% target is forecast to be gradual given some signs that domestic price pressures are emerging.
    • The US Federal Reserve raised interest rates for a sixth time at its March meeting to 1.75% and maintained its expectation of gradual hikes. We expect the next rise in June and a further hike in the second half. Notwithstanding uncertainties related to the potential rise in global protectionism, strong economic growth boosted by tax cuts and a tight labour market will increase confidence that domestic inflation will continue to build.
    • Our view of the ECB remains that it will continue with monthly asset purchases of €30bn until September and wind down the programme by the end of the year. That would pave the way for interest rates to be raised in the middle of 2019. Recent downside data surprises have increased the risk that policy stimulus will continue for longer, although some of the softness may prove to be temporary.
    • UK and US 10-year bond yields are forecast to rise to 1.8% and 3.0%, respectively, by end-2018, and to 2.1% and 3.2% by end-2019. In FX, we anticipate GBP/USD to stay in a broad range, with an end-year target of 1.38, rising to 1.42 by end-2019. Our central view is for the euro to outperform, with the end-2018 forecast for EUR/USD at 1.25, rising to 1.30 by end-2019, and EUR/GBP at 0.91 (GBP/EUR at 1.10), rising to 0.92 (GBP/EUR at 1.09) by end-2019.

    Read the full International Financial Outlook Report for April 2018.

    Read the previous International Financial Outlook Report for March 2018.

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