Don’t worry too much about interest rates – for now

The recent good economic news pouring out of the UK (see this week’s magazine for more on this) should be focusing everyone’s minds on interest rates.

Is it really possible for us to have economic growth of 3.5% (as the OECD thinks is possible) but to also have the Bank of England base rate at its lowest since the 1690s? We rather doubt it.

However, if you are worried about the effect that rising interest rates might have on your UK equity portfolio, you can relax – for now, at least.

Below is a chart from JP Morgan showing that bad stuff doesn’t usually happen in equity markets until rates go over the very long term norm of 5%.

Correlations Between Weekly Stock Returns and Interest Rate Movements