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Buxton: November or bust for pre-election rate rise

Dan Jones
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Dan Jones

The Bank of England will hold off on hiking rates for six months if it does not act by November, leaving a “clear run” for investors until the general election, Richard Buxton has predicted.

Minutes from August’s Monetary Policy Committee meeting, released last week, showed two members voted for a rate hike – the first such move in over three years.

Since March this year, the consensus view has been for rates to go up in Q1 2015, and data this month showing CPI inflation fell from 1.9 per cent to 1.6 per cent in the year to July seems to support this view.

One national newspaper last weekend claimed there is a ‘pact’ between Governor Mark Carney and Chancellor George Osborne to keep rates on hold before the election. The story was swiftly denied by officials, but Old Mutual Global Investors’ Buxton suggested there is little precedent for a hike early next year.

“Traditionally, the Bank of England tries not to move rates in the six month run-up to an election. If Carney does not move rates by November, it is unlikely they will move until next May,” he said.

The manager said this means investors will have “a pretty clear run in terms of just responding to economic data and newsflow”, even though some market participants have become increasingly confused by the Bank’s attempts to communicate its monetary policy intentions.

Sterling has fluctuated in line with a series of conflicting reports on the timing of rate hikes, and Buxton warned Carney could fall foul of the law of diminishing returns.

“Carney is in danger of losing his ability to impact markets if he continues to twist and turn. The market will still react to dovish or hawkish comments, but perhaps increasingly modestly,” he said.

Asked what impact a hike, and the beginning of a new phase of tightening policy, would have on his choice of investments, Buxton said he will continue to add to housebuilder Taylor Wimpey on the dips within his £1.5bn UK Alpha fund. This is despite the sector being among those which could be most negatively affected by a rise in interest rates.

“We are taking advantage of the on/off risk appetite for the sector, firmly believing on a two-or three-year view that this is a company that is going to make you a lot of money,” he said.