The Bank of England policy on interest rate rises has been ‘ludicrous’ and needs to be reversed in the New Year with rate cuts, Managing Partners Group (MPG), the international asset management company, says.
It is forecasting a rate cut in the UK of 0.5% in the first three months of year with the potential for the base rate to drop to 4% by the end of 2024. In the US, MPG is forecasting rate cuts of between 1.5% and 2% over the year.
The most recent Bank of England Monetary Policy Committee meeting voted to maintain the base rate at 5.25% with the next meeting due on February 1st. The Bank has increased the base rate 14 times starting from December 2021 when it was 0.1%.
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Base rate cuts in the UK will give the UK property market a huge boost as it will be much easier to predict interest rates for the next five years enabling more competitive fixed rate mortgage deals to be offered, predicts MPG, which runs the Melius Fixed Income Fund investing in corporate, high yield and insurance linked securities.
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MPG predicts UK inflation will hit 2.25% by the end of the year in the UK and the EU – it will mean rates paid to savers will be higher than inflation enabling them to protect the real value of their cash without taking too much risk.
UK to avoid recession in 2024
However MPG says equity markets are heading for a ‘choppy ride’ in the year ahead as the higher yield market takes hold. The fund manager believes the yield driven market worldwide will temper performance expectations for fixed income funds and those aiming for double digit performance will need to increase exposure to corporate bonds, and other higher yielding securities.
Jeremy Leach, Chief Executive Officer at MPG, said: “It was ludicrous to put rates up to the extent the Bank of England did. Whatever they were trying to achieve it was not necessary to go as far as they did. We expect the Bank of England to announce an interest cut of 0.5% in Q1 2024 to stimulate the UK economy. Our view is that the UK was far too aggressive with interest rate rises and certainly have the scope to bring them down to 4% before the end of 2024.”
MPG, which runs the Melius Fixed Income Fund investing in corporate, high yield and insurance linked securities, predicts the UK will narrowly avoid recession but will only achieve growth of between 0.5% and 0.75% lagging behind the US and the EU.
