Expectations are high that the Bank of England will raise the base rate for the second time from the current rate of 0.5 to 0.75 percent. While economist believe it’s possible, the markets are predicting a 28 percent chance of a hike. The markets are pricing in the lower expectation after last Friday’s GDP data.
In the event of increasing rates, investors need to position their portfolio by focusing on sectors that benefit from higher rates such as banks. Investors should avoid real estate which is rate sensitive and sectors such as consumer staples that pay out dividends. In particular the retail sector will continue to be pressed as consumer will pay more for items and experience higher borrowing costs.
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