Managers see U.K. nearing interest-rate peak as BOE adds another 25 basis points

Money managers expect to see U.K. interest rates reach a peak in the coming months, following a 12th consecutive raise by the Bank of England on Thursday.

Managers were not surprised by the central bank's decision to raise rates by 25 basis points, to 4.5%, and said that while the bank was not forecasting a recession, the inflation forecast meant the bank won't be able to pause future hikes just yet.

Andy Burgess, fixed income investment specialist at Insight Investment, said in an emailed comment that the core inflation expectation has moved to the upside due to developments in the housing market.

"However, given the tightening already seen, we are not far from the peak in rates with only one or two rate hikes likely from here. We then expect the Bank of England to pause, in contrast to market expectations for rate cuts in the second half of the year," he said.

Edward Hutchings, head of rates at Aviva Investors, agreed with Mr. Burgess that the market is still pricing in at least one more hike of 0.25%.

"With the upgrading of growth forecasts, it's likely a recession will be avoided in the near term. However, the more the BOE hikes, the larger and quicker cuts may be when they come. This should see sterling weakness and gilt yields supported over the medium term," Mr. Hutchings said in an emailed comment.

Managers also agreed that rate cuts are unlikely in the U.K. until 2024, whereas the U.S. Federal Reserve could cut as soon as this year.

Hussain Mehdi, macro and investment strategist at HSBC Asset Management, said in an emailed comment that due to ongoing labor market tightness and the risk of a wage and price increases-related spiral, "there is a good chance of the bank rate peaking at 5% by the August meeting."

But, he added that "rate cuts are unlikely until well into 2024, whereas the Fed could be in cutting mode later this year."