Besides trade tariffs, among the indicators of concerns over growth is the Bank of England having halved its forecast of UK GDP for 2025, from 1.5 per cent to 0.75 per cent.
Monthly real gross domestic product in the UK is estimated to have fallen by 0.1 per cent in January, after growth of 0.4 per cent in December 2024.
According to George Martin, a senior fixed income analyst at Charles Stanley, the continuation of recent growth concerns will put an upward force on bond prices, as investors look for a safer place to hide.
But with inflation still sitting above most central bank targets, Martin also says that bond prices could be inclined to fall.
UK inflation, for example, has remained above the 2 per cent target since October.
“Positioning for either of these [price movements] is simple,” he says. “But knowing which force will come out on top isn’t.”
Tom Hibbert, a multi-asset strategist at Canaccord Genuity Wealth Management, says that as inflationary pressures largely receded in the Eurozone and with growth stagnating, the European Central Bank has been able to move more quickly to cut rates.
The BoE and the US Federal Reserve on the other hand are moving cautiously, he says.
The ECB lowered its deposit rate by 25 basis points to 2.5 per cent in March, when the BoE base rate stood at 4.5 per cent and the Fed’s target range for the federal funds rate was at a similar level between 4.25 and 4.5 per cent.
“We are prioritising traditional fixed income characteristics with a moderate duration stance,” Hibbert adds. “Our duration preference has been for the US, although we increasingly favour UK gilts as the yield premium has increased.”
Richard Carter, head of fixed interest research at Quilter Cheviot, likewise says that most major central banks are in the process of lowering rates; and while this is theoretically positive for bonds, there remains a considerable level of uncertainty over the pace and timing of any future rate cuts.
“In addition, there are concerns around lingering inflationary pressures, particularly since the start of US President Donald Trump’s second term in office, which could result in central banks having to hold off on cutting rates in order to avoid reducing them too much too quickly.”
Inflation moderated in the US, at 2.8 per cent in February and slightly below expectations, says Quilter investment strategist Lindsay James.