International Financial Outlook Report – August 2019

Summary of key forecasts

  • Our baseline expectation is for global growth to stabilise but recover only modestly in the coming year, aided by looser financial conditions, but buffeted by global political uncertainty. Recent events highlight that risks to this view are significant and a further loss of growth momentum cannot be ruled out.
  • Brexit overshadows the UK, with the outcome still extremely difficult to predict. Our base case is conditioned on a negotiated withdrawal agreement later this year. However, a wide range of scenarios are still possible and it is hard to be confident about how and when a resolution will be reached.
  • Assuming our base case scenarios for the UK and global economy are borne out, we now expect the Bank of England to hike its policy rate by 25bp next August and also forecast less dovish than current market predictions for the other major global central banks. We forecast US policy rates to be cut next month to 1.75%-2.00%. The ECB is predicted to reduce its deposit rate by 20bp to -0.6% by end-2019.
  • Our 10 year Treasury yield targets are 2.0% for end-2019 and 2.3% at end-2020. Our 10 year gilt yield targets are 0.9% for end-2019 and 1.8% at end-2020. Our 10 year German bund yield targets are -0.3% for end-2019 and -0.2% at end-2020.
  • We forecast the British pound to strengthen on confirmation of an ‘orderly’ EU withdrawal. Our targets for GBPUSD are 1.29 for end-2019 and 1.33 for end-2020. For GBPEUR, we forecast 1.12 for end-2019 and 1.14 at end-2020. EURUSD is forecast at 1.15 at end-2019 and 1.16 at end-2020.0.5% at end-2020. We forecast EURUSD at 1.14 at end-2019 and 1.15 at end-2020.

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