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Investing.com -- The Bank of England is not expected to decrease interest rates in the near future, according to the CEO of deVere Group, one of the world’s major independent financial advisory and asset management firms. This forecast comes after the Bank of England’s Monetary Policy Committee (MPC) decided to maintain the base rate at 4.5%, succeeding a reduction in February’s meeting.
Nigel Green, CEO of deVere Group, indicated that those anticipating a swift rate cut could be met with disappointment. He cited the unexpected rise of inflation to 3% in January and the persistent 5.9% wage growth as key factors that might dissuade policymakers from reducing rates. Green stated that these conditions do not favor rate cuts as high wage growth signifies continued consumer spending, increased business costs, and persistent risks of inflation.
The financial markets have been anticipating a series of rate cuts this year, but Green suggests that this optimism may be misguided. He advises investors who were hoping for a quick return to lower borrowing costs to reconsider their strategies. If rates remain high, sectors such as real estate, tech, and high-growth companies that have benefited from the prospect of lower rates could face renewed pressure, while defensive stocks, high-yield assets, and dividend plays could continue to be appealing.
Green also noted that the currency markets could react to these developments. If the UK maintains higher rates while other economies lean towards easing, the pound could strengthen, which could pose challenges for exporters but present opportunities for those with overseas investment interests.
For businesses and households, deVere predicts that borrowing costs are unlikely to decrease soon. Mortgage holders, particularly those with variable rates or planning to refinance, should brace for continued high repayments. The firm suggests that hopes for cheaper mortgages in the near future are probably unfounded. Until wage growth slows down, the pressure on housing affordability is likely to persist.
Green emphasized that wage growth, not inflation, is the key factor to watch at this time. He stated that until wage growth shows clear signs of slowing, the Bank of England will not feel comfortable cutting rates. He concluded that optimism about the Bank cutting rates throughout the year is likely to be misplaced, as wage growth is keeping the possibility of rate cuts at bay.
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