Equity prices come off the boil

Global equity markets have come off the boil over recent weeks, particularly in emerging economies, as the prospect of another hike in US interest rates before the end of the year grows. UK equity prices have not escaped, with the FTSE 100 falling by nearly 3% on the month. But the recent spate of robust domestic economic news has pushed the trade-weighted sterling index further up from its post-referendum low. Meanwhile, gilt yields have increased away from the all-time lows reached recently and corporate bond yields picked up too. But the prospect of ultra-loose monetary policy in the UK ahead suggests that government bond yields should remain markedly low for a long time yet. Indeed, a majority of MPC members have indicated that they still expect to support another rate cut if the economy performed broadly in line with expectations. Given that the MPC’s forecasts still look about right, we expect to see rates cut again in November, from 0.25% to 0.10%.