International Financial Outlook Report – July 2018
Summary of forecast changes
- Recent UK data and comments from MPC members add weight to our central call for a quarter-point rate rise in August to 0.75%. We anticipate a further rate increase in 2019 to 1.00%, although the outcome of Brexit negotiations (along with any domestic political repercussions) represents a significant unknown, and the key risk to the outlook. The EU response to the Chequers agreement and the passage of the trade and customs bill through parliament are keenly awaited.
- We maintain our forecast for the US Federal Reserve to raise rates twice more this year, with the next hike to 2.25% pencilled in for the September FOMC meeting. Our central view is for two further increases next year to 3.00%.
- The ECB has indicated that it will stop its QE programme by year-end. We expect it to start raising interest rates in September 2019, with 10bps increases in the deposit and refinancing rates to 0.3% and 0.1%, respectively.
- We have maintained our profile for moderate increases in UK and US 10 year bond yields to 1.4% and 3.0% by end-2018. In FX, we have kept our end-2018 targets for GBPUSD at 1.38 and EURUSD at 1.25. USDCNY forecast for end-2018 has been revised to 6.55 from 6.45.