Interest rates in most developed markets have been exceptionally low since March 2009. This has been a boon for investors in equities, property and bonds, which have enjoyed strong price appreciation as a result, but has been terrible for savers holding cash. However, with economies now stronger and unemployment rates very low, are we about to see a pickup in inflation and, with it, a return to the more normal levels of interest rates seen before the global financial crisis? In this briefing, we consider the importance of inflation in the setting of interest rates, recent inflation experience and our views on the likely path of interest rates from here. We then consider the potential impacts on financial markets and investment portfolios.
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