The renewed concerns about growth in China, which led to a rout in Chinese equities at the start of 2016, hit financial markets worldwide, including the UK. That said, the UK has been relatively sheltered from this storm, with bond yields only falling back to slightly below where they were a month ago and the FTSE generally outperforming equities in the rest of the world. What’s more, the UK has effectively experienced a monetary loosening which will be positive for the real economy, with markets pushing back the expected date of the first interest rate hike and sterling continuing its recent downward trend. However, we believe that interest rates will rise faster than markets are currently expecting. This, along with further monetary policy easing from the ECB, should result in a bounce-back in sterling against the euro, which will lead to a rise in the exchange rate on a trade-weighted basis.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services