International Financial Outlook Report – April 2019
Summary of key forecasts
- Our baseline expectation is for global economic growth to stabilise and rebound modestly in the second half of the year. We expect global inflation pressures to remain contained, allowing the main central banks to pursue an accommodative policy stance. The risk to the central view is a further loss of momentum in activity, potentially induced by broader and more intensive global trade tensions.
- Brexit remains the dominant issue in the UK. Our central case is still that a negotiated agreement will be reached later this year. However, a wide range of options are possible and it is not easy to be confident about how and when a resolution will be reached. Domestic political risks remain elevated.
- UK Q1 GDP growth is forecast to have accelerated, partly related to stockpiling, but we expect growth to moderate in subsequent quarters as uncertainties around Brexit return ahead of the 31 October deadline. Overall, we expect the Bank of England to keep policy on hold this year, with one rate hike forecast for next year assuming our central Brexit assumption is borne out.
- We forecast the British pound to strengthen on the expectation and confirmation of an ‘orderly’ EU withdrawal. Our targets for GBPUSD are 1.34 for end-2019 and 1.36 for end-2020. For GBPEUR, we forecast 1.18 for end-2019 and end-2020. Our 10 year gilt yield targets are 1.5% for end-2019 and 2.0% at end-2020.
- We forecast US policy interest rates to be unchanged at 2.5% through this year and next, with economic data supporting a ‘patient’ Federal Reserve. That compares with current market expectations for lower rates. Our 10 year Treasury yield targets are 2.6% for end-2019 and 2.9% at end-2020.
- The ECB is predicted to delay its first interest rate rise until June 2020, with only gradual hikes thereafter. Our 10 year German bund yield targets are 0.1% for end-2019 and 0.5% at end-2020. We forecast EURUSD at 1.14 at end-2019 and 1.15 at end-2020.