Rupert Thompson, chief economist at Kingswood, the UK AIM listed wealth management group, has said that he sees peak rates "in sight" across the US, UK and eurozone.
Noting the downturn in global equities over the past week, as markets reacted to the Fitch rating on US government debt and US Treasury 10-year yield moving above 4%, he said that "The rise in yields certainly poses some downside risk to equities. But the key to the outlook remains whether the US manages a soft-landing or not. Although recent data have been quite encouraging, the truth is that the jury is still out on this one."
"Here in the UK, all the focus was on the Bank of England. As widely expected, it opted for a 0.25% rise in rates to 5.25%, rather than a 0.5% hike as in June. The Bank also released its latest batch of economic projections and raised its inflation forecasts while cutting its growth estimates. It still sees inflation slowing to 4.9% by the end of this year but not falling back below the 2% target until 2025. As for activity, it is forecasting growth will be a modest 0.3-0.5% this year, next year and the year after.
"The Bank stuck to the line that further tightening will be required if there is evidence of more persistent inflation. With wage growth and core inflation both running at around 7% and still a major concern, rates look likely to be raised another 0.5% over coming months. This would leave them peaking at 5.75%, rather than above 6% as had been feared a few weeks ago.
"In the US, there is a good chance that rates have already peaked."
"That said, this is still very dependent on the data and Friday's US employment numbers were as ever a major focus. In the event, they proved a mixed bag. Payrolls rose a little less than expected but the unemployment rate edged lower and wage growth was slightly higher than forecast.
"The latest numbers in the eurozone also did little to change the perception that rates there are at or very close to a peak. After dicing with recession over the winter, GDP posted a moderate 0.3% gain in the second quarter. Meanwhile, headline inflation edged down to 5.3% in July and the core rate was unchanged at 5.5%."
Kingswood serves wealth management clients from offices in the UK, South Africa and the US, which it is looking to build on through acquisitions and strategic partnerships.