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As much as 50 percent of UK wealth mangers are expecting higher interest rates on borrowed funds as early as next year, as the Bank of England becomes more combative regarding borrowing and large differences emerge between rate setters.

The general consensus is the position of the global economy can withstand an increase in borrowing costs, despite the fact that 70% believe that corporate profits to carry on increasing to highs not seen since mid-2014.

This has come as a surprise as inflation fell in June from 2.9% to 2.6%.

The five to three vote on the Monetary Policy Committee recommended a 0.25% rise in interest rates.

‘I believe the Bank of England was wrong to cut rates last year and employ additional QE [following Brexit],’ said Richard Scott, senior fund manager at Hawksmoor. ‘They risk going into the next recession with an enfeebled monetary arsenal as it seems the governor feels under little compulsion to ever raise rates!’

Stefano Del Federico, co-founder of The Private Investment Office, echoed that sentiment. ‘[Rates will rise] in the next six months, otherwise they will not have the ability to stimulate the economy after the stock market correction.’

‘The Bank of England is miles behind the inflation curve and has failed in its main objective to promote price stability,’ said Tavistock chief investment officer Christopher Peel. ‘Returns across the gilt curve will be negative (nominal and adjusted for inflation).’

‘Which alternatives to hold,’ will be the critical call, suggested head of private clients at Thomas Miller Andrew Herberts. ‘[And] how to value them. A lot of private client investors appear to have been chasing alternative investments such as infrastructure.

‘There is a point at which their diversifying properties become diluted as prices appear to be getting ahead of fundamentals – at which point they may act as any other risk asset.

He added: ‘The key risk to markets is an exogenous shock which shakes investors out of their current complacency. The fundamental backdrop in terms of both the economy and earnings is positive, but equity valuations already discount much of this. Thus there is little downside cushion for shocks.’

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