Interest rates poised to rise amid inflation surge, investment expert says

Interest rates are set to be hiked from their current level of 0.1 per cent as the Bank of England grapples with surging inflation, an investment expert told business leaders at a HURST event.

Alex Brandreth, chief investment officer at Manchester-based Luna Investment Management, said an increase to 0.25 per cent in November is on the cards and that rates could reach one per cent during the current economic cycle.

He said that the economy was strong enough to withstand an increase, although he pointed out that it would push up the cost of servicing the country’s huge public debt.

Alex made his prediction during his latest update on the economy and global markets to HURST clients. The breakfast event was held at HURST’s offices in Stockport.

He said the Bank of England would need to act on interest rates in the face of rising inflation, which could reach five per cent against the Bank’s own target of two per cent, partly as a result of wage inflation caused by labour shortages.

There are a record number of job vacancies, as the employment pool has shrunk during the pandemic. Large numbers of people have retired early, or are now staying at home to look after their children, yet employers are looking to recruit as companies seek to grow as quickly as possible amid the economic revival.

Supply chain issues and increases in oil prices and energy costs are also driving up inflation.

In his overview of the current economic situation, Alex said inflation could reach five per cent within the next three to six months, but this was not a surprise because coming out of a recession usually triggers a surge in demand and consumer spending.

The pandemic has seen consumers grow their savings and pay down debt, giving them cash to spend.

COVID has been the ‘elephant in the room’ and a lot more needs to be done globally in terms of the vaccination rollout, said Alex.

However, globally the crisis is starting to tail off and economies are bouncing back, he added.

Economic growth in the UK is predicted by the OECD to be 6.7 per cent this year and 5.2 per cent in 2022, representing a much quicker recovery than after previous crises.

“Confidence is coming back a lot quicker than expected,” he said.

In terms of investments, Alex said UK equities look cheap relative to other global stock markets, and we are only 18 months into the current bull market – defined as an increase of more than 20 per cent.

“The average length of a bull market is just under six years, so we are just beginning, and the returns can be huge. Investing is a long-term game,” he added.

Alex did not rule out the possibility of new carbon or green taxes or a rise in capital gains tax as the government looks for ways of tackling the mammoth level of public debt.