‘Most gains will be in next six months’, says Mott

The short-term positive economic environment for stockmarkets in the UK, says Mott, will be driven by investors viewing the income returns on equities as being more attractive than gilts and bank deposits, as they start believing the interest-rate peak is approaching. He adds that this will result in a rerating of equities.

Mott believes base rates will peak at around 5% in the next three months. This is because recent data suggests the Bank of England’s policy of trying to slow down consumer demand and house price inflation is working. But Mott says the low interest rates of the past few years were a one-off and will not be repeated, because “any further consequent boom in consumption and house prices would be disastrous”.

He argues that the UK will now have a sustained period of interest rates of around 5%: “No external help for the economy is going to be delivered going forward. Our view is of a gently slowing economy and a short-term rally in the market. This will be followed by a long period of modest economic growth and a bracing, but not hostile, corporate profit outlook.

“Under these circumstances, most of the gains in the overall market may occur in the next six months.”