Inflation will hit 3% for the year and GDP growth will peak at 1.5%, Threadneedle has predicted.
Quentin Fitzsimmons, head of government bonds at Threadneedle, says that as long as the Bank of England is “focused solely on inflation,” any further Base Rate cuts are highly unlikely.
Key drivers of inflationary pressures such as fuel and oil prices are unlikely to ease, as Fitzsimmons predicts oil to remain at $100 a barrel, with anything above $90 continuing to be inflationary.
There are, however, opportunities at an investment level. “Rising inflation is not good news for a traditional bond fund manager,” he says, “but more sophisticated funds that take advantage of the UCITS III regulations can make money in these conditions."
He says that using derivatives, managers of UCITS III funds can tailor their strategies to match their views with great precision.
“Changes in interest rate and inflation expectations lead to changes in the shape of the yield curve,” continues Fitzsimmons. “We can target these changes very accurately with the range of instruments at our disposal. We can also make money from rising yields across the curve, which would be a nightmare scenario for a traditional manager.”IFAonline
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