Mott says that market data over the next month or so is likely to trigger a policy change by either the government or the Bank of England, with the likelihood being a cutting in interest rates.
Mott has been highly critical of the MPC’s decision to hold interest rates at 5 per cent, claiming there are no inflationary pressures.
He says: “We remain of the view that the Bank of England are 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 push inflation are no greater if interest rates were to be cut, than if interest rates remain where they are.”
Mott highlighted the mortgage approval figures due on May 27 as the catalyst of the market data that is set to be “political dynamite” that will create the crunch scenario for both the government and Bank of England.
“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, then the domestic cyclical areas are cheap on the basis that they are discounting a much worse environment then would then be the case.”
Mott’s fund is currently biased towards financials and domestic cyclicals, he also has significant investments in oils, telecoms and pharmaceuticals.
“The only area of the market where we have no exposure is the mining sector, where in addition to these stocks having no yields, we believe that a ‘bubble’ psychology exists.”