Bank of England governor Mark Carney has warned that interest rates in the UK could rise in the near future, prompting speculation that the BoE’s Monetary Policy Committee could raise rates at its next scheduled meeting on 2 November
A key driver of any such move would be to stave off risks associated with high levels of household borrowing.
“What we’re worried about is a pocket of risk – a risk in consumer debt, credit card debt, debt for cars, personal loans,” Carney said during a radio interview broadcast by the BBC Radio 4 Today Programme.
The BoE, like the US Federal Reserve and the European Central Bank has increasingly hinted in recent months that economic recovery is leading it to lean towards normalisation of interest rates.
However, a number of portfolio managers active in credit and other asset classes, seem to take a more cautious view of the ability for the BoE to raise interest rates, given what is happening in the sense of broader market direction, and particular challenges facing the UK.
Quentin Fitzsimmons, senior portfolio manager at T. Rowe Price warned that: “More than a year has passed since the UK electorate voted to leave the EU and there is a long way to go before an agreement over the terms of the UK’s departure is likely to be reached – if there is an agreement at all.”
“In our view, the UK faces a challenging few years as it deals with the departure. Our concern is that, having largely exhausted its monetary policy options, the UK government will have limited ability to protect the economy from a significant slowdown.”
“Our base case is, barring a major political change of course in the UK – which is possible given the vulnerability of the government – a ‘hard-ish’ Brexit is the most likely outcome, meaning the UK falls upon WTO terms. It is almost certain the UK will suffer a slowdown if it falls upon WTO terms. Less clear is how severe the slowdown will be and how long it will last. In the event of a sharp slowdown, what tools would the UK have at its disposal to stimulate growth? ”
When asked about the broader ongoing bull market and the chances of its continuing, Colin McQueen, senior global equity fund manager at Sanlam FOUR, said: “In this environment, markets are hanging on every word from central bankers. Threats to the era of cheap money have yet to be followed up with much action – but with bubbles inflating in many areas, a desire to touch the brakes without causing those bubbles to go bang is there.”
“Caution will be the way forward and it could be some time before rates are sufficient to make cash and bonds a more desirable home for flows. But
with valuations now at the highest point outside of the tech bubble, future returns are inevitably contracting, as risks of pullbacks grow.”
Eoin Murray, head of Investment at Hermes, added: “The inexorable rise of the US equity market continues apace. Talk of asset bubbles is abruptly dismissed and confirmation of the Federal Reserve’s plans for reducing its balance sheet is barely a hurdle.”
“We have not yet seen my two favourite signals of having reached a market top. Firstly, the point when some participants will try to convince you that we are faced with a new paradigm and that you just do not understand. Secondly, there are still plenty of bears around – and we really should expect them to capitulate before we truly enter the death throes of this run. Also, technical momentum still provides a strong tailwind – the shift to passive and volatility targeting strategies continues apace and these are adding to equity positions too. But now is not the time to be complacent.”