By Vanguard’s Investment Strategy Group

The themes we highlighted at the end of 2022 – persistent inflation, tight jobs markets, rising interest rates – remain at the halfway stage in 2023. 

Developed market economies like the US, UK and euro area have proved resilient. Labour markets have remained strong, leading to slower-than-expected disinflation (falling inflation). Wage pressures have moderated but remain persistent, especially in service industries. As a result, central banks like the Bank of England have had to raise interest rates somewhat higher than we had anticipated.

We expect continued progress in the fight against inflation, with central banks having to keep interest rates higher for longer. And with that, we anticipate some economic weakness in the months ahead.

Vanguard’s year-end forecasts 

You can see our updated forecasts for the year in the table below. These figures reflect the improved performance of the global economy and enduring stickiness of inflation, and are generally higher than six months ago.

Where we expect the global economy to end 2023

where we expect the global economy to end 2023

Core inflation excludes volatile energy and food prices. Our US forecast for year-end interest rates reflects the low end of the US Federal Reserve's federal funds target range.

Notes: Figures are Vanguard forecasts for the end of 2023. Growth and inflation are comparisons with the end of the preceding year; interest rates and unemployment rate are absolute levels.

Source: Vanguard, as at 26 June 2023.

Expected 10-year investment returns 

Overseas stock markets, on the whole, have performed strongly this year – with the notable exception of China, the dominant emerging market by total value. For most investors around the world, the gains have reduced the expected 10-year returns of global shares. 

Bond markets have also largely recorded solid gains – but less so if we take into account the effects of inflation. 

But bucking the global trend, UK markets struggled in the first half of 2023. Falling share valuations (falling prices mean shares look better value relative to other markets) and rising bond yields (which is the same as falling bond prices) have as a result boosted our expectations for 10-year annualised returns in sterling terms. A growing difference between interest rates in the UK and the US has also improved the outlook for markets outside of the UK. 

Our forecasts are derived from a 31 May 2023, running of the Vanguard Capital Markets Model1, which analyses historical data and simulates thousands of projections, using a series of forward-looking assumptions and indicators. 

These projections are purely hypothetical – there is no guarantee of them happening. Under the circumstances, they are nonetheless encouraging. 

Forecast returns for the next 10 years across markets

forecast returns for the next 10 years across markets

If you want any more information, either about the outlook for the UK and euro area economies, or for an explainer on what higher interest rates mean for you, please see our further reading suggestions below. 


Figures are based on a 2-point range around the 50th percentile of the distribution of return outcomes for shares and a 1-point range around the 50th percentile for bonds.

IMPORTANT: The projections or other information generated by the Vanguard Capital Markets Model 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 of 31 May, 2023. Results from the model may vary with each use and over time. For more information, please see the ‘Investment risk information’ section.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Past performance is not a reliable indicator of future results.

IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. VCMM results will vary with each use and over time.

The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include US and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.

Important information

This article is designed for use by, and is directed only at, persons resident in the UK.

The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so.  The information in this article does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.

Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.

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