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Portfolio Positioning in Relation to Interest Rate Prospects

Updated: May 19, 2022

We’re positioned for interest rates staying where they are, not rising. Inflation needs propping up, not suppressing.

True, [Bank of England governor] Mark Carney is talking about the first rate rise getting closer, but I think he’s doing this because it’s the only tool in his armoury to hold back asset prices. His main job is goods and services price stability and employment, and in both cases we’re some way from needing a rate hike.

The last time interest rates were increased for the first time following a period of reductions was in November 2003. At that time, unemployment was 4.9% and core inflation above 1%. Right now, unemployment is 5.6% and it’s going to take some time to get below 5%. Same issue with inflation. ‘Carney will also be keen to avoid what happened to the US when interest rates were increased very slightly at the back of 1936 following a few years of moderate recovery: the economy contracted sharply, and the stock market halved.

Published in CityWire

The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.

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