However, in the wake of the announcement, we may see some further volatility in the currency markets with the potential for sterling to weaken further. We took profits last year after the fall in sterling boosted the value of holdings in other currencies and in our view sterling remains undervalued compared to other major currencies based on purchasing power parity (PPP). If the currency should fall markedly in future, we will continue to assess the fundamentals and look for attractively priced assets that align with our core investment principles and house view.
There may also be some volatility in equity markets. A fall in sterling may see UK companies with a significant international bias gain as investors anticipate a currency-based boost in non-sterling earnings. Conversely, concerns over the domestic economy may see domestically focused companies weaken in the near term.
We believe the economic picture remains strong. GDP growth of 2% in 2017 and healthy levels of inflation around the Bank of England (BoE) target of 2% for the next few years are anticipated by major institutions. Retail sales and wage growth data has softened in recent months, which may indicate headwinds, but in our view UK plc remains in good shape.
We are expecting UK interest rates to remain on hold for the rest of the year and inflation to stick around the 2% mark, largely fuelled by sterling weakness. In the meantime, an imminent rate rise in the US suggests that the American economy is growing, and this should continue to power global growth. Against this backdrop, the UK economy should be well placed to take advantage of any up-tick in global demand.