Another rate hike in the balance

The Bank of England's decision to hold interest rates at 5.75% was widely expected but that a further rate rise before the end of the year is 'in the balance', says F&C's Scott.

Commenting on the MPC's decision to hold interest rates Ted Scott, manager of the F&C UK Growth & Income fund, said: "Markets have been pointing to at least another 25 basis point rise before the end of the year but I do not think this is a sure fire bet. It is becoming increasingly evident that the effects of previous interest rate rises are finally beginning to bite. This is being evidenced in a much tougher housing market, particularly outside the M25 where consumers are finding it much more difficult to sell their properties but also from an increase in the amount of people having to refinance their mortgages at a higher rate this year. As many cheap fixed rate deals come to the end of their terms, a large percentage of UK households will be facing a sharp rise in their monthly mortgage payments."

Scott said food prices had also been rising but that the Consumer Price Index, the Bank's de facto measure of inflationary pressure, had remained stubbornly low. The RPI is at 4.4% against 2.4 in the CPI index.

"CPI remains low disguising the fact that the Retail Price Index (RPI) is actually quite high and that non-discretionary income prices have risen rather substantially.

"The recent profusion of profit warnings among quoted companies is further evidence of the slowdown in consumer confidence. From defensive giants such as Tesco and Marks & Spencer who continue to do well but have nevertheless seen a drop-off in sales to more extreme examples such as Jessops and more recently, Sports Direct which have both issued quite severe profit warnings," he added.