Planned Interest Rate Rises Cancelled - FED and BofE

Author: Ian Davis - Bullion Manager

Published: 8 Feb 2019

Last Updated: 12 Mar 2019

The Federal Reserve Interest Rate

Market pressure, and possibly Donald Trump himself, has resulted in the FED stopping short of planned 2019 interest rates keeping current rates at 2.5%. Apparently sluggish global growth, the Sino-US trade war and Brexit amongst others have changed the tune to that of a dovish tone. It goes without saying that equity, foreign exchange and sovereign debt markets welcome the temporary interest rate freeze but remain more confused than ever with FED communications and forecasts.

The Bank of England Interest Rate

The bank's base rate will remain at 0.75%.......for now at least. The BoE follow suit with the FED deciding to put interest rate rises on hold for 2019 yet interest rates in the UK remain significantly lower. Could we see the current 0.75% base rate extended for years to come? It would be nice I admit but unlikely in my opinion. Short term at least it is understandable as no one has a clue on Brexit outcomes and global economies remain braced for a correction (or even a recession) led by the US. The Bank of England also issues a warning for the economy if a no deal scenrio plays out.....

Jon Snow Tweets BofE Warning

Brexit and Differences in Rates

Often the UK will follow suit if the federal reserve chooses to increase or decrease rates. As global economies are intricately linked and western trade well established this should come as no surprise. What is intersting at the minute is that the US has a much higher rate of interest at 2.5% than that of the UK which is currently 0.75%. The stark differences between the US and UK planned interest rate hikes you can only conclude that UK monetary policy is being influenced heavily by Brexit.

Mark Carney, the BofE governor, is cautious of a no deal and the general outlook is gloomy with any option likely to have negative short term consequences. It is therefore logical to try and keep the economy stimulated with "cheap" money. UK Growth figures for 2019 were revised down from 1.7% to 1.2% which is the weakest level seen since the recession over 10 years ago. On the other hand gold has had a good start to 2019 seeing prices remain steady around the £1000 mark often trading above.

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