Incoming Bank of England governor Mark Carney will most likely prioritise a devaluation of sterling and engage in more quantitative easing when he takes up the position in July, according to Pimco.
Pimco says UK investors may want to consider inflation hedging and non-sterling assets, while reducing exposure to those susceptible to tail risks, as part of its forecast for the “Carney era.”
In the manager’s latest three to five-year outlook for global markets, Pimco head of sterling portfolios Mike Amey says investors should brace themselves for higher inflation.
He says: “Either taking sterling down or conducting more quantitative easing would be easier to implement; these are the most likely initial forms of aggressive monetary policy.
“Given the stickiness of UK inflation, and its sensitivity to higher import prices, UK investors should stay alert to the risk of higher-than-expected inflation.”
The Times reports Carney may attempt to depreciate sterling by as much as 15 per cent in order to help attract foreign capital.
Data from the Office for National Statistics shows CPI inflation rose by 2.4 per cent in April, down from the 2.8 per cent recorded in March, representing the first time inflation has lowed since autumn 2012.
The Bank of England’s CPI target rate is 2 per cent.