View more on these topics

Gartmores MultiManager funds questions rate rise

Gartmores MultiManager funds has questioned if the Bank of England knows something the rest of the market doesnt following its decision to raise interest rates.

Bambos Hambi, co-head of Gartmores MultiManager, says: The market has been caught off-guard by todays decision, but it is only the timing rather than the actual increase which was unexpected.

With the quarterly inflation report due next month, it was widely anticipated that interest rates would reach 5.25% in February, as increases in the current tightening cycle have often come in a month when this data was released.

Our key concern now is whether this is a pre-emptive measure or if the Monetary Policy Committee will opt for a further hike in the coming months.

Until the minutes of the meeting are released in two weeks time, we are left speculating about what prompted this move. It could well be that the economy is growing faster than had been predicted and that there are concerns about the lack of spare capacity.

Equally, an unexpected drop in unemployment could be cited as increasing inflationary pressures.

Retail price inflation, which is often used in wage negotiations, has been higher than consumer price inflation so we were already expecting comments about the demand for higher wages.

The decision to increase rates sooner rather than later may well be a move aimed at pre-empting above-inflation wage increases as salaries are renegotiated throughout the first quarter.

The short-term impact is that sterling has strengthened against the euro and the dollar.

Looking at equities, stocks including home-builders and leisure groups such as pubs will feel the effect.

In the medium-term, this move has the potential to spook the housing market, which has so far remained fairly buoyant in the face of higher interest rates.

It will also intensify concerns about the high level of consumer borrowing.

At this stage, todays increase in rates doesnt alter our fundamentally positive outlook for UK equities.

However, this could change once we see the minutes from this weeks MPC meeting.

Recommended

Rise came to quick, says propertyfinder.com

Propertyfinder.com has warned that the surprise rate rise will mean that the housing market will not be able to cool gradually.The property website predicts that more severe changes will have to be made to the economy if the housing market is to remain stable.Warren Bright, chief executive of propertyfinder.com, says: Todays interest rate increase is […]

Citizens Advice champions Governments financial capability strategy

The Citizens Advice Bureau says the governments financial capability strategy could have a massive impact on UK consumers’ ability to tackle debt.Teresa Perchard, policy director of Citizens Advice, says: There is a significant need to help thousands of people make the most of their money, both now and in the future. “This a real chance […]

ARLA predicts buy-to-let stability

The Association of Residential Letting Agents has predicted that the fundamentals of the buy-to-let market will remain unchanged following yesterday’s base rate rise to 5.25%.In the final ARLA quarterly review and index for 2006, more than eight out of 10 investment landlords were reported as saying that they would not sell their property investments even […]

Why shouldn’t I join the game of fleecing the innocent?

Name and address suppliedI read recently that Paul Gray, acting chairman of HM Revenue & Customs and VAT, is entitled to a pension pot of 1.7m. How reassuring, especially if your name is Paul Gray. Strange then that this morning I received from Network Data – the network of which I am an AR of […]

Newsletter

News and expert analysis straight to your inbox

Sign up