Inflation expectations unlikely to lift UK gilt yields much – Capital Economics

Paul Dales, Chief UK Economist at Capital Economics, forecasts that UK 10-year gilt yields will end 2022 at 0.50%.

Key Quotes:

“10-year gilt yields haven’t been significantly dragged higher by 10-year US Treasury yields because, unlike their US counterparts, break-even inflation rates in the UK have not been boosted by expectations of a big fiscal stimulus, a rise in inflation and tighter monetary policy. Admittedly, we suspect that diminishing expectations of negative interest rates in the UK will push up 10-year gilt yields from 0.28% now to around 0.50% by the end of the year. But our relatively subdued forecast for RPI inflation over the next two years suggests that the markets’ inflation expectations won’t push up 10-year gilt yields much further. Our forecast that 10-year yields will end 2022 at 0.50% is lower than the consensus forecast of 0.80%.”