Interest rates will not rise in 2014
But Paul Sedgwick, head of investment at Frank Investments warned that whilst the outlook for the domestic economy appears favourable the impact of foreign markets on the UK should not be ignored.
He said: “On the surface, everything in the garden appears rosy as we enter 2014, although the underlying risks should not be ignored.
“We are in a five year secular bull-market in equities. However, despite the improving economic outlook and the falling unemployment levels, interest rates are not likely to rise this year in either the UK or the US as, barring any shocks from an oil price spike, inflation will remain subdued.
“The next Eurozone ‘wobble’ is likely to come from France as continued tensions between the weak French economy and the booming German economy will once again place the European Central Bank in a difficult position.
“On the one hand, the ECB will need to prevent deflation taking hold within the Eurozone economy – with the consequence of increasing the value of debt – whilst on the other hand, it will need to pay attention to the wishes of the Germans, who would be happy with a modest rise in rates.
“Germany, despite its history and public stance on inflation, will be as aware as anyone of the perils of deflation in the Eurozone economy and its potential impact on peripheral economies.”
Sedgwick said that the catalyst for the ECB to move interest rates could be the results of the bank’s stress tests, which is likely to expose the weakness of the French banking sector as the country continues to struggle.
He said: “Deflation will remain a threat in the Eurozone and, combined with the weakness of the French economy, this will force Mario Draghi to try and persuade Germany to authorise the use of some of the tools at his disposal to further stimulate the Eurozone economy.”