Investors believe interest rates will rise again this year

Despite the decision to hold interest rates, an overwhelming 87 per cent of investors questioned this week by Barclays Stockbrokers believe interest rates will rise at some point this year. Almost half believe rates will rise above 6% and 41 per cent believe rates will rise to 5.75%.

Henk Potts, Equity Analyst, Barclays Stockbrokers on today’s decision: “At the start of this year, there were hopes that interest rates would peak at 5.5%. However, the threat of inflation appears to be more of a risk than was previously envisaged. As a result, there is further pressure on the Monetary Policy Committee to take rates to 5.75%. May's Inflation Report was taken by the market to be a fairly hawkish affair. It highlighted that if interest rates were to remain on hold, inflation would fall back to target on a twelve-month view, but the risks to this are very much skewed to the upside. While there are a number of base effects that will take inflation lower over the coming months, such as lower domestic gas and electricity bills, the report highlighted concerns that companies are continuing to push through price rises.

Henk continued: “The Bank of England is concerned that this could filter through to higher inflationary expectations. However, on a positive note, it does seem that wage inflation remains subdued. The tone of the accompanying statement also suggested a still hawkish BoE, which leads us to believe that rates will again move higher, possibly as early as July; at which point we believe rates will have peaked for this cycle.”