Advisers downbeat on MPC base rate move

A third of advisers do not expect the Bank of England to increase interest rates for at least another year, a study suggests.

A survey of more than 400 IFAs at the ABC Bonds Roadshow - hosted by AXA Investment Managers, Baring Asset Management and Cazenove Capital - found 31% forecast a static base rate for a minimum of 12 months.

One in 10 expect the Monetary Policy Committee (MPC) to wait two years before upping rates while 6% anticipate an increase of some sort before the end of March.

Elsewhere, one in four expects it will take six months before we see a rise, while the remaning 28% do not expect an increase for at least nine months.

"As fourth quarter GDP data showed the UK economy only barely emerging from recession, it is not surprising a high number of IFAs surveyed do not see any imminent rise in UK rates," AXA Sterling Corporate Bond fund manager Theodora Zemek says.

"The Bank of England monitors growth data but is also aware that inflation data continues to surprise on the upside, even before the VAT rate rise in January.

"However, we believe fiscal policy after the election will also be a major influence on the Bank's decision to raise interest rates, so on balance we would expect the first rate rise in the second half of this year."

Baring Absolute Return Global Bond Trust manager Colin Harte adds: "It is interesting to see that as many as 10% of the IFAs surveyed believe it could be two years before we see a Bank of England rate increase.

"Our expectation is that the increases will begin sooner, possibly by the end of this year."

Cazenove Capital director of UK advisory sales Robert Thorpe says research conducted by his company suggests most advisers do not want a rate increase this year.

"This view on interest rates is leading advisers to focus on duration and those funds with low duration are now starting to dominate advisers' buy lists," he says.

"Our experience is this is also leading to a greater number of advisers seeking managers who have a flexible mandate allowing them to play both the credit spectrum and yield curve."