Are UK equities attractive relative to gilts?

While the dividend yield of the FTSE 100 recently rose above the yield on 10-year UK gilts for the first time since last autumn (see Chart 1), we would be wary of reading too much into this particular comparison. We do think UK equities are attractive by historical standards relative to government bonds based on an alternative approach. However, we still think the FTSE 100 is likely to end the year slightly lower than where it is today, while we expect 10-year conventional gilt yields to continue to fall to around 3%.