Investors will watch closely the decision by the Bank of England on its base rate tomorrow as inflation and interest rates continue to dominate the thoughts of the investment community.
The Bank of England has keep interest rates at a record low of 0.5 percent for the last two years, but rising inflation means a rate hike is expected at some point in 2011.
Over the last 10 months, the number of people on the bank’s nine-person committee calling for a rate rise has risen to three and tomorrow’s vote is expected to be a close call.
A rise in interest rates would generally be bad news for the stock market, as higher rates make equities less attractive compared with debt. Higher interest rates also restrict the spending of consumers and industry.
The hand-wringing over rate rises has been brought about by soaring inflation, which hit 4 percent in January, 2 percent above the bank’s target level.
Inflation is currently top of investors’ concerns, according to a recent survey of 1,650 UK investment professionals by dianomi, a provider of customer acquisition services for the financial services industry.
One in five investors responding to the survey says inflation is the most-feared economic outcome, while 15 percent fear recession the most and 13 percent are most worried about unemployment.
Rising inflation means ‘investors will likely invest in defensive blue chips in natural resources and other sectors like utilities and healthcare where major companies have pricing power,’ comments Cabell de Marcellus, co-founder of dianomi.
‘Sectors like airlines may be best avoided as a combination of oil prices and weak customer demand create losses.’
