NIESR have a good record in short-term forecasting for the UK. Our base case forecast for growth is +0.8% for 2013 as a whole.
Another set of strong PMIs next month will no doubt lead us to upgrade this forecast. We have always felt the whole double (or even triple) dip debate in the media exaggerated the true picture.
Unsurprisingly, after such a large financial shock, this is indeed the weakest post-war economic recovery, although the economy hasn’t actually been in another recession.
As a result of this shift in sentiment, the gilt market has begun to wake up to the fact that, with real yields still negative, valuations are very stretched.
Markets are still awash with liquidity though, and this has helped push equities higher as the ‘least overvalued’ asset class. So we have the odd situation of equities and gilts performing well at the same time.
Something will have to give and we think gilt yields will gap higher. Our end year target is 2.5% for the 10-year benchmark.
