Finance Monthly. 40 Business & Economy Could we be near the peak for interest rates? Chris Clothier, Co-Manager of Capital Gearing Trust, said: “The market is forecasting a peak rate of just under 6% for Q1 2024. Leading indicators are beginning to show the labour market cooling, and the impact of interest rate rises is starting to be felt on mortgage rates as mortgage holders come to the end of their fixed terms. We expect that this will eventually depress demand which, combined with energy and food inflation moderating, will eventually control inflation.” Samantha Fitzpatrick, Fund Manager of Murray International Trust, said: “Many central banks, including the Bank of England, have continued with planned interest rate hikes amid volatile markets in an attempt to tame inflation. We are only now seeing the huge knockon effect on mortgage rates as previous deals are rolling off in significant numbers. This, above all else, may curtail future interest rate hikes here in the UK.” Andrew Bell, Chief Executive Officer of Witan Investment Trust, said: “In the US, a further nudge higher cannot be ruled out, but the data is likely to make the recent pause look more justified in a month’s time. In Europe and the UK, a further quarter-point rise or two is widely assumed, but it is impossible to be precise because of the lags before higher rates impinge on sentiment. After such a long period of a near-zero cost of borrowing, small steps would be wise. No central bank wants to crash the economy and have to cut rates aggressively next year just to crown the credibility lost from failing to anticipate the surge in inflation with blame for exaggerating its persistence. “With inflation starting to converge with official targets, greater patience can be exercised than when the gap was widening. So we expect the peak in rates to resemble Table Mountain more than the Matterhorn. It is an unspoken reality that the government debt mountain will have to be eroded by inflation – not the destabilising rates of the past year but likely higher than official 2% targets.” Is inflation calming down? Andrew Bell, Chief Executive Officer of Witan Investment Trust, said: “Yes, most obviously in the US, which tightened first and most aggressively, together with a strengthening dollar in 2022. Energy prices there have fallen and rental inflation is also set to fall, lagging the declines in rent seen in newer contracts. In Europe and the UK, inflation is proving stickier but rates are still rising and the effect of past rises has yet to be fully felt. In the UK, particularly, the greater use of fixed rate mortgages has blunted, but only delayed, the effect of rapid rises over the past year. Having seen several disappointing inflation numbers in recent months, investors may be guilty of Many central banks, including the Bank of England, have continued with planned interest rate hikes amid volatile markets in an attempt to tame inflation.
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