Macro House View Q2 2026

Peak pricing similar to 2022 with disruption into 2028

Our revised forecasts for oil and gas prices (Figures 1 and 2) are informed by both the current spot pricing and forward-price curves. We now expect Brent oil prices to peak at around $110 per barrel—similar to the peak seen after the Russian invasion of Ukraine in late February 2022—and far higher than our prior forecast of approximately $60 per barrel. Because oil prices are set globally, the U.S. is not sheltered from the supply shock, despite being a net oil exporter.

Figure 1: Oil prices, $ per barrel

Figure 2: Gas prices, $ per million BTU

By contrast, given the far greater difficulty in transporting and storing gas, there really is no global price for natural gas. So while we have markedly increased our European and Asian natural gas price forecast, from around $10 per million BTU to roughly $18 per million BTU, our forecast for the U.S. Henry Hub gas price is basically unchanged.

In both our oil and gas price forecasts, we are assuming that the Strait of Hormuz will reopen by the latter part of Q3 2026 and that energy prices will begin to normalize at that point. The normalization process will take some time, given the damage already inflicted on Gulf region production capacity. For example, the CEO of QatarEnergy has already reported that 17% of Qatar’s liquefied natural gas (LNG) production capacity has been destroyed and will take three to five years to repair. As a result, we expect our oil and gas price forecasts to remain elevated into 2028.

Inflation shock vs. growth shock

Given the size of the supply shock shown in Figures 1 and 2 it may be surprising that our forecasts for GDP growth (Figure 3) do not look markedly different from those published in Q1 2026. The supply shock is not significant to our five-year forecast across most major markets, except for Australia and Japan, where we have reduced our forecasts by 30 basis points (bps) each. Similarly, our inflation forecasts (Figure 4) are perhaps more muted than expected, with the exception of Australia (revised up 30 bps) and China (up 60 bps).

Figure 3: GDP, 2026-2030, % Y-o-Y

Figure 4: CPI, 2026-2030, % Y-o-Y

Importantly, in most major markets, our long-term view is masking substantial fluctuations in the macroeconomic cycle. Figure 5 shows weaker U.S. GDP growth and higher inflation as a result of the supply shock. However, once the supply shock passes, the economy rebounds, with both higher growth and lower inflation than previously forecast. And over the five years, average GDP growth and inflation are generally the same as before. This same pattern plays out across Europe and parts of Asia Pacific.

The reason for this rather benign outcome is threefold. First, these markets are either energy independent (the U.S.); have diversified sources of energy from renewables, nuclear power or LNG from European (Norway and the Netherlands) suppliers; or are energy resilient (China’s 10 months of stockpiled oil). Second, outside of the U.S., regulatory policy is likely to be used to dampen the pass-through effects from wholesale energy prices through to consumers. Indeed, price caps are already in place in Korea, China and parts of Europe. Third, many central banks “look through” temporary energy price shocks when setting monetary policy, a practice known as “looking through” supply-side price shocks. However, this isn’t a universal response, and deviations to this approach bear some deeper investigation.

Figure 5: U.S. GDP Growth and Change in U.S. CPI, % Y-o-Y

Look through vs. tighten then loosen

In our new forecasts, central banks in the U.K. and the U.S. are likely to be in the look through camp, delaying the first rate cuts from 2026, as we had previously forecasted, to 2027. Our new forecast for the U.S. is in line with current bond market pricing. But it is worth stating that, except for Japan, the U.K. market has the widest degree of divergence between the consensus expectation for Bank of England (BoE) monetary policy and what the bond markets are pricing in. Economists still expect the BoE to cut its policy rate this year in response to weak demand and a loosening labor market; we held the same view in our first quarter Macro House View. However, the bond market is pricing in three policy rate increases in 2026. We have decided to opt for a middle ground where the BoE no longer cuts rates in 2026 but also does not raise them. By contrast, we expect the European Central Bank (ECB) to raise rates twice in 2026 before reversing its stance in 2027. This change to our forecast is in response to the ECB’s clear messaging that it stands ready to raise rates, and its historically more hawkish stance on inflation than its U.K. or U.S. counterparts.

We see a rather different policy response to the near-term inflationary pressure in Australia and Japan. The Australian central bank had already started to raise its policy rate in response to sticky inflation at the start of 2026 and has continued to raise rates during the Middle East conflict. We expect those rate rises to continue in 2026 and for rates to be held at 4.35% throughout 2027 (Figure 6).

Figure 6: Central bank policy rates, %

Australia will be the major market with the tightest monetary policy globally, which is reflected in our new forecast of even-higher for even-longer bond yields (Figure 7). We now expect the Australian 10-year government bond yield to run 15 bps higher, on average, across the five-year forecast period, at 4.8%. The central bank’s strict stance reflects its desire to dampen housing market speculation. We expect this to feed through into a wider dampening of consumer spending, resulting in weaker economic growth across the forecast period.

Figure 7: 10-year government bond yields, %

Meanwhile, we continue to expect that the Bank of Japan (BoJ) will raise its policy rate to 2.75%, but now at a faster pace. Our bond yield forecast is unchanged, reflecting our previously held view that the BoJ will have to take the spectre of rising food price inflation seriously, as well as the newly announced looser fiscal stance of the newly elected federal government (Figure 8).

Figure 8: 10-year government bond yields, %, 2026-2030

Finally, a word on Europe. As Figure 9 shows, the best-performing markets in Europe are expected to be Spain (already a fast-growing market driven by technology, engineering and financial services), as well as Sweden and Germany, which will benefit from a defense- and infrastructure-driven spending boom. The bottom of the chart shows the three major markets with the weakest sovereign credit: France, Italy and the U.K. With public finances in all three now likely to be under even more strain as they roll out fuel price subsidies and grapple with weaker near-term growth, we expect fixed-income markets to impose higher borrowing costs through elevated long-term interest rates.

Figure 9: GDP rebased to 100 in Q4 2025

We continue to expect a period of elevated risk premia for French and U.K. government bonds relative to German Bunds (Figure 10).

Figure 10: 10-year government bond yield premia over German bunds, PP

The markets are currently pricing in a two-quarter energy supply shock as the Strait of Hormuz remains closed to most traffic. Once the Strait re-opens, damage caused by the shock will be slow to repair with energy prices largely normalizing by 2028.

This results in higher cyclical growth, inflation and interest rates in the U.S., Europe and much of Asia Pacific, but a more sustained period of elevated inflation and weaker growth in Australia and Japan. Notably, while we have placed the U.K. in the more benign camp of look through monetary policy, it is the major market most at risk of moving into the growth-shock camp alongside Australia and Japan, given its high dependence on imported energy and the wide divergence between economists’ consensus expectations and market-implied forecasts.

As the situation in the Middle East evolves, we will incorporate the latest developments into our forecasts for energy supply and prices, and will revise our macroeconomic and real assets forecasts accordingly.

Download the Macro House View Q2 2026.