• International Financial Outlook Report – July 2017

    Summary of forecast changes

    • We maintain our forecast for one further US rate rise this year to 1.25-1.5%, but now attach more weight to December than September, as policymakers assess whether the recent falls in inflation turn out to be transitory. Assuming the US economy evolves as expected, we continue to anticipate three further hikes in 2018.
    • Our central UK Bank rate forecast is unchanged, with the first rise in the latter half of 2019. We are mindful that a combination of upside inflation surprises and resilient economic activity could easily result in policymakers reversing last August’s emergency rate cut. The outcome of the Brexit negotiations also represents a key risk to the policy outlook.
    • The ECB is expected to maintain its policy stimulus measures this year, but announce in the autumn a reduction in asset purchases from next year. Its guidance remains that interest rates will not rise until after the end of asset purchases, which we envisage will be in the latter part of 2018.
    • Long-term market interest rates continued to ratchet higher in most major economies, as central bank signals point to prospects of less policy stimulus. We have revised up our targets for 10-year gilt yields to 1.5% (from 1.2%) for end-2017 and 2.0% (from 1.9%). Our forecasts for 10-year US Treasury and German bund yields have also been nudged higher.
    • Our FX forecasts for major currencies are largely unchanged. We maintain our forecast for GBP/USD at 1.30 and 1.34 for end-2017 and end-2018, respectively. GBP/EUR is seen steady at 1.14 through to end-2018, although that belies risks on either side of the forecast, particularly relating to the UK growth and inflation outlook.

    Read the full International Financial Outlook Report for July 2017.

    Read the previous International Financial Outlook Report for June 2017.