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Mott says economy at a crossroads

PSigma income manager Bill Mott believes that an inflection point is becoming more likely as the Government looks to stave off a possible recession.

Mott has slammed the Bank of England for failing to cut base rate this month, claiming there are almost no inflationary pressures.

He says market data over the next month or so is likely to trigger a policy change by the Government or the Bank of England, with the likelihood of a cut in interest rates.

He says: “We remain of the view that the Bank of England is following an inappropriate interest rate policy and that domestic inflationary pressures are almost non-existent.

“We also believe that the risk of current inflationary trends feeding through to the secondary effects of wage inflation are no greater if interest rates were to be cut than if interest rates remain where they are.”

Mott says the mortgage approval figures, released by the British Bankers’ Association this week, are set to be the catalyst of market data that is “political dynamite”, creating a crunch scenario for the Government and the Bank of England.

He says: “As the weeks progress, the economic stats will get progressively worse. This should trigger a change in policy. If the economic numbers over the next three months are not as bad as we expect, the domestic cyclical areas are cheap on the basis that they are discounting a much worse environment than would then be the case.”

Mott’s fund is currently biased towards financials and domestic cyclicals and he has significant investments in oils, telecoms and pharmaceuticals. He says: “The only area of the market where we have no exposure is the mining sector. In addition to these stocks having no yields, we believe that a bubble psychology exists.”

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