By Chris Dorrell
The UK faces a risk of a “hard landing” as higher interest rates squeeze consumer spending, according to a senior executive at global investment giant Pimco.
Daniel Ivascyn, chief investment officer at Pimco, said the UK has a “higher probability of more significant economic deterioration” than the US.
He argued that this was because it was “a smaller, open economy, with a consumer that’s feeling the brunt of central bank policy far more than their US counterparts”.
Ivascyn said he had been running larger bets against UK government bonds compared with the US as he expected the economy would face greater strain.
“We do think there’s potentially more hard landing risks,” he added in an interview with the Financial Times.
Although the UK has exceeded expectations this year, the Bank of England’s historic bout of monetary tightening has left the economy unable to generate any real momentum.
Growth was flat across the third quarter while figures out last week showed a 0.3 per cent fall in GDP in October, a larger than expected fall.
A range of forecasters have been dialling back expectations for the UK’s growth outlook next year, with the Bank itself predicting the economy will remain more or less stagnant for two years.
Despite this gloomy picture, Andrew Bailey, governor of the Bank, has insisted that its “really too early to start speculating about cutting interest rates”.
But Ivascyn was bullish about the prospect for bond investors more broadly as the era of negative yields is unlikely to return.
Investors have suffered deep losses over the past two years as higher rates have hit the value of bond portfolios, but, as inflation continues falling, the return on bonds will look far more attractive than in the decade that followed the financial crisis.
“Global bond investing is back,” he said. “It’s the first time in a long time we’ve been excited about value and relative value in the UK, Europe and Japan”.
