Vanguard economic and market outlook

Mid-year 2023 update

The inflation fight proceeds, slowly

Jumana Saleheen, Vanguard European chief economist, explores the inflation and monetary policy outlook in the UK and euro area as part of the mid-year update to our economic and market outlook.

Key points

Challenges to the global economy remain

Developed market economies have proved resilient in the face of persistent inflation, tight labour markets and rising policy interest rates. But we anticipate some economic weakness in the months ahead.

Central banks have more work to do

Central banks have needed to raise monetary policy rates higher than we had anticipated. The last leg of inflation reduction to target levels may be the most challenging, in our view.

Asset-class returns outlook improves for UK investors

Equity and bond markets worldwide have generally recorded positive returns since the start of the year - for most investors around the world, the gains have pushed our expected return forecasts slightly lower.

Slow but sure progress on inflation 

There’s been progress in the fight against inflation. But it’s too early to declare victory. Vanguard foresees developed market core inflation (which excludes food and energy prices) continuing to fall through to the end of 2023 from recent generational highs.

uk chart central policy rates

Notes: We use year-over-year changes the core consumer price index (CPI) for all locations. Year-end 2023 figures are Vanguard forecasts.

Sources: Vanguard calculations, using data from the U.S. Bureau of Labor Statistics, Eurostat, and the UK Office for National Statistics accessed through Macrobond on 15 June 2023.

Outlook for growth, inflation and interest rates

We expect continued progress in the fight against inflation, with central banks having to keep interest rates in restrictive territory for longer. But inflation and monetary policy have elevated the risk of recession and we anticipate some economic weakness to come in the months ahead.

Table representing outlook for growth, inflation and interest rates

Please note that inflation forecasts are for core inflation, which excludes volatile energy and food prices. Our forecast for the United States year-end monetary policy rate reflects the low end of the Federal Reserve's federal funds target range.

Notes: Figures related to economic growth, inflation, monetary policy and unemployment rate are Vanguard forecasts for the end of 2023. Growth and inflation are comparisons with the end of the preceding year; monetary policy and unemployment rate are absolute levels.

Source: Vanguard, as of 26 June 2023.


Expected 10-year asset class returns have dropped slightly




IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model (VCMM) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from the VCMM are derived from 10,000 simulations for each modeled asset class. Simulations are as at 31 December 2021; 31 December 2022; and 31 May 2023. Results from the model may vary with each use and over time. 

Note: Figures are based on a 2-point range around the 50th percentile of the distribution of return outcomes for equities and a 1-point range around the 50th percentile for fixed income. Indices used in VCMM calculations: Euro area equities: MSCI European Economic and Monetary Union (EMU) Index; global ex-euro area equities: MSCI AC World ex EMU Index; euro area aggregate bonds: Bloomberg Euro-Aggregate Bond Index; global ex-euro area bonds: Bloomberg Global Aggregate ex Euro Index.

Source: Vanguard.


Watch the highlights

Watch this summary video of the key takeaways from our mid-year 2023 outlook, where Joe Davis, Vanguard global chief economist, discusses sticky inflation, central banks’ reply and a silver lining for investors.



monthly Vanguard economic and market update
Vanguard economic and market outlook: mid-year 2023 outlook slidebook

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