BlueBay Issues Bearish Warning on U.K. Markets
(Bloomberg) -- Britain’s economy is edging closer to stagflation, according to Mark Dowding, the chief investment officer at BlueBay Asset Management, who forecasts the rate of inflation will double by next year as growth flatlines.
Dowding warned that both bonds and stock prices are at risk, as equities fail to reap the benefits of growth that would normally counteract the inflationary drag on bonds. He’s especially bearish on duration, or rate risk, and is avoiding longer-dated debt maturities.
“In the U.K., things are particularly concerning,” Dowding said in an interview with Bloomberg Television. “We’ve been seeing a much more pronounced jump in prices, which will act as a headwind on the consumer. We are going to see slowing growth. If anything, our economically illiterate government seems to do their best to drive us toward a stagflationary mess.”
Consumer price inflation could hit 6% next year while retail price inflation tied to some wages could jump to as high as 8%, Dowding warned as U.K. natural gas prices surged to a record. That came as a market-based measure of expected inflation in the U.K. over the next decade hit 4.08%, the highest since 2008.
Dowding sees a 50% probability that the U.K. will be in recession in 12 months. This compares to a probability of about 10% in the U.S. and 15% in the euro region.
Last week he warned the pound risks a 10% decline in the next six months if stagflation takes root.
“It’s going to be difficult for risk assets to perform strongly in the face of strong headwinds that seem to be building,” London-based Dowding said. “It gives me no pride to say that the U.K. outlook is looking especially grim at the moment.”
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