Two-thirds of UK fund managers believe interest rates will rise before the second half of 2015, despite the more cautious tone set most recently by Bank of England Governor Mark Carney, a study has found.
According to a survey by Capital Spreads, the vast majority of fund managers working in the UK are pencilling in a rate rise before the 7 May election.
Just one quarter of the 200 City investors questioned said the Bank of England will wait until the second half of the year - after the general election - to raise the base rate.
Meanwhile, only 9% expect Governor Mark Carney (pictured) will stick to his original pledge to keep rates low until 2016 or beyond.
The findings come against a backdrop of increased confidence. The proportion of fund managers expecting the UK economy to strengthen this year has jumped from 84% in Q1 to 89%. Roughly a fifth said the economy will “improve significantly”.
Investors' views also chime with recent signals from the Bank of England, with Carney suggesting interest rates may reach 2.5% by 2017.
Despite the bullish stance on the UK, the survey also revealed unease about prospects for the eurozone, as well as concerns about the IPO market.
The boom in technology company IPOs in particular is spooking investors, with 58% of respondents expecting the tech bull market to continue for less than three years from here. Just over one in ten said they expect the “tech boom bubble” to burst in the near future.
Capital Spreads head of trading and market risk Nick Lewis said confidence in the UK economy is close to sky high: “Clearly, however, we are entering a new economic debating chamber – the thorny issue of interest rate rises," he said.
“The aforementioned positive economic news is creating a very convincing argument for raising rates before Mark Carney’s forward guidance indication of 2016 at the earliest.
“Whether the guidance was in fact misguided is a moot point – investors believe that interest rates will rise before the general election, despite political pressure to maintain the status quo until after the hustings.”
