Ranked first was a base case scenario which predicted inflation of between 1.5-2.5%, and remained anchored to central bank targets.
Edward Smith, head of asset allocation research and author of the report, said: “We assign the highest probability to a benign scenario in which inflation expectations remain well anchored and any inflationary effects from ageing or deflationary effects from technological change are offset with monetary policy.”
However, Rathbones assigned the second-highest probability to the prospect of low inflation caused by technological change.
Smith said: “Ordinarily, technological change improves productivity, which ultimately drives wage growth over the long run. Further, higher productivity lowers the production costs of goods and services, which stimulates demand.”
He then listed “a few scenarios where we believe that might not happen — in other words, where new technologies increase supply but also lower aggregate demand”.
The first considers a scenario where technology improves connectivity but the deflationary impact of lower cost services is not fully offset by emerging market demand.
The second looks at the revolution in healthcare with the introduction of personalised medicine and the impact it has on individuals remaining in work and increasing savings for longer.
The third reflects on automation and artificial intelligence, commenting on a scenario where technology substitutes human workers rather than complements them, and as a result is likely to reduce workers’ bargaining power.
Smith added: “Over the next 20 years, we think inflation expectations are likely to remain well anchored, with any inflationary or deflationary impact from ageing, technological change or other phenomena, offset with monetary policy. To this end, a balanced, multi-asset portfolio, with equities at its core may be the key to superior risk-adjusted returns.
“Bonds are likely to struggle as interest rates rise, pressured by policy normalisation and demographics, so we favour diversifying assets instead.
“The biggest risk to this benign view is the prospect of technology-induced low inflation that central banks struggle to offset.”