Expect six-month pause after first BoE hike in a decade

Ridhima Sharma
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While some Bank of England MPC members – even among the most dovish – have been talking up more than one hike, we do not think the committee will be in a rush. The authorities will likely want to see the impact on consumers and households with variable rate mortgages.

We would expect a pause until this coming May, at the earliest. The BoE will tread a similar path as the Fed the first time it hiked. While the Fed initially indicated it wanted to do more, it was cautious and only raised rates again one year later.

We do not believe the most dovish members of the MPC have fully embraced more rate hikes just yet; particularly as the UK still faces serious concerns, such as Brexit. Nevertheless, these uncertainties will likely result in more bond and currency market volatility – which will create opportunities for investors.

As for gilts, the concerns about the UK economy will likely cap yields. It is worth remembering that we have become accustomed to low rates. If sterling rises on the expectation of rate increases, it will dampen inflation and mean there is less of a need to continue hiking rates.

Craig Veysey, manager of the Sanlam Strategic Bond Fund

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