No Interest Rate Changes Expected From BoE and Federal Reserve
Economists will be closely watching for cues as both the Bank of England and the U.S. Federal Reserve will have their quarterly meeting this week. The general expectation regarding interest rates is that they will adopt a wait-and- see policy given recent events like President Donald Trump’s ascension to power.
UK’s central bank dropped interest rates by 25 basis points in the aftermath of the Brexit vote in order to boost economic growth at a time when the country was shaken by uncertainty.
Currently the central bank is said to have a neutral bias allowing equal chance for raising or dropping the rates.
According to Kallum Pickering, senior UK economist at Berenberg, the surprising resilience shown by UK’s economy so far could have an impact on the decision. The devaluation of the pound triggered by the Brexit is increasing inflation in the country and this could cause the central bank to raise the interest rate in the near future but only after assessing the supply and demand fundamentals in the economy.
Howard Archer, chief UK and Europe economist at IHS Markit, stated that leaving the EU is likely to increase the tolerance levels for inflation within the UK but rising uncertainty and declining consumer spending could hit economic growth in the coming months.
In a statement, James Knightley analyst at ING said
The Bank of England is expected to leave rates on hold and is likely to retain its position that a rate hike is just as likely as an interest rate cut. Certainly the recent data flow has been strong and inflation is on the rise, but there are tentative signs of a slowdown in employment growth while business surveys suggest a growing sense of caution surrounding Brexit.
The Bank is not likely to raise rates before 2019 according to financial experts.
The U.S. economy is showing signs of faster growth along with rising inflation. President Trump has promised $1 trillion in infrastructure spending and four percent growth but no further details on how it will be achieved. Victoria Clarke at Investec said that the markets are paying keen attention to see if Trump goes through with his election promises such as imposing border tax on imports.
The Federal Open Market Committee (FOMC) raised rates in its December meeting, and most experts do not expect another raise now although three rate increases through 2017
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