Expectations of tighter UK monetary policy have pushed sterling up against the US dollar, driven gilt yields higher, and contributed to an underperformance of the domestic stock market. We continue to think such expectations are misplaced. By the end of this year, we think the US dollar/sterling exchange rate and 10-year UK government bond yields are likely to have fallen to around $1.40 and 2.75%, respectively. And even though we suspect the UK equity market will end 2011 lower than it is now, it should find some support from a re-think of the outlook
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