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OPINION

Three kings on the horizon

Three kings on the horizon
July 30, 2014
Three kings on the horizon

Punishing schedules and precious little investment returns certainly make the task more onerous. A good dose of scepticism is useful when evaluating the options, the ability to spot a charlatan and bin the bumf even better. In next week's issue we will take a careful technical look at the monthly and yearly charts for eight key markets. Until then, the gift of sniffing out the suspect or the odd man out is what we want.

Pollsters are useful here, Bloomberg and Reuters being the industry heavyweights, GfK, Ipsos Mori and YouGov specialising in retail opinions. We have scoured Reuters' polls on the UK economy (they canvass dozens of market professionals for their views on many data series). The aim is to give you a feel for where consensus opinion lies, whether people may be overconfident, and what the potential pitfalls might be.

The outlook for gross domestic product - the value of all economic activity in Britain - has a mean estimate of 2.3 per cent annualised growth in 2016 and 2.2 per cent the following year. This is similar to 2015's pace and lower than 2014's nearly 3.0 per cent rate. Some forecasters are inevitably gloomier than others, predicting growth of just 1.5 or 1.7 per cent (Schroder), while Swiss Re and Investec are the most bullish at 2.7 per cent. All are well below the average in the decade to 2007 where normal was closer to 5.0 per cent.

 

UK GDP

 

Foreign exchange rates are, in the very long run, related to GDP so the 60 or so currency strategists have a median forecast at $1.5200 in 12 months, close to today's rate. Once again considerable variation exists, ABN Amro favouring a drop to $1.2700 by next Christmas and BBVA the highest at $1.7000. Interestingly the band between $1.4000 and $1.7000 has contained this currency pair for much of the time since the mid-1990s, so the view is in no way controversial.

 

Foreign exchange poll

 

Views as to where the Bank of England will target Bank Rate are conservative to say the least. From the current 50 basis points, a record low first set in March 2009, the median view is for a small rise to 0.75 per cent in Q2 2016 rising to 1.00 per cent by year-end, then on up to 1.25 in Q1 2017. Fathom Consulting only sees a rise to 0.75 per cent happening in Q1 2017, while the most 'optimistic' thinks it will be 1.75 per cent by then. With so much debt outstanding, we say: be careful what you wish for.

 

Bank of England's rate 

 

Ten-year gilt yields, which have confused so many since quantitative easing, are expected to rise steadily from current ultra-low levels to a still modest 2.50 12 months hence. Santander thinks a yield at 3.30 per cent is more likely, while a far less positive HSBC has the lowest forecast at 1.45 per cent - practically the record low.

 

Gilt yield poll