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Rate rise would be ‘GDP suicide’

M&G head of retail fixed interest Jim Leaviss has warned the Bank of England would cause “GDP suicide” if it raises interest rates in the near future.

He believes we may be seeing a re-run of the 1993/94 economic scenario, when bonds rallied hard in 1993 before the Fed unexpectedly hiked rates in February 1994, resulting in a 200bps sell-off in 10-year treasury yields.

He says the Fed may wait for unemployment to fall further from its current level of 9 per cent, as it has in the past two cycles, but the inflation concerns in the UK are more pressing, given the BoE has continually missed its 2 per cent target.

Leaviss points to the fact that inflation has been above 3 per cent for most of 2010, with RPI inflation standing at 4.7 per cent. He adds that the 2.5 per cent VAT rise is set to feed into markets.

Leaviss says the money markets are already pricing in two 0.25 per cent rate increases in the UK this year, with a small chance there will be a third rate rise by year end.

He says: “Rate hikes would kill core inflation but they would also be GDP suicide in this fragile economy, bringing deflation risks back into play. Hopefully, the bank still feels it can target future inflation and has the confidence to ignore those reacting to current inflation newsflow and calling for imminent rate hikes.”


Nationwide brings £2bn of HML admin in house

Nationwide Building Society is transferring the admin of two mortgage books worth a combined £2bn in house from HML following its acquisition of the Cheshire and Derbyshire building societies. Last month, Money Marketing revealed that GMAC-RFC had brought the admin of its £3.6bn mortgage book in house from HML. Since mid-December, HML has lost 12.7 […]

Skipton BS launches new fixed and tracker range

Skipton Building Society has launched a range of new two-year fixed rates and two and three-year trackers. The deals are available from tomorrow through Skipton branches, its contact centre and intermediaries. The range includes a two-year fixed to 60 per cent loan-to-value at 2.98 per cent, a two-year tracker at base rate plus 1.78 per […]

Friends Provident relocates head office

Friends Provident is relocating its headquarters to the One New Exchange development in the City of London following the acquisition of AXA’s UK life business by parent company Resolution. The move is expected to take place in April, when Friends Provident will leave its current site in nearby Wood Street. Around 200 staff will initially […]


Banking Commission chair sends warning over break-ups

Independent Commission on Banking chairman Sir John Vickers is expected to tell the large banks involved in both retail and investment banking activities that they should not expect to remain intact. According to a report in the Financial Times, Vickers will use a speech on Saturday to outline a range of options which could be […]

Global equities: time to de-risk?

While equity valuations have doubled since the financial crisis, Simon Edelsten explains that there are still pockets of value. But not where you might think Macro-economic uncertainty is causing turbulence in equity markets. Artemis Global Select Fund manager Simon Edelsten says his investment themes are taking him in a different direction to some of his peers – away […]


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