WHERE TO FOR INTEREST RATES?

Much was made last year of a slowdown in markets with the Fed in the US seeming to be on a path to higher and higher rates in order to put a break on the runaway economy there fuelled by Trump’s tax cuts for the wealthy and as a result an ever increasing national debt.

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More recently it seems however that the Fed has become somewhat more relaxed about rises in the future and markets have picked up on this and recovered somewhat. While US and China trade wars become a routine headline the effect of them seems to have dissipated somewhat.

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Here in Britain we heard the Governor of the Bank of England indicate that interest rates would most probably be cut in response to a no deal Brexit in order to give the UK economy every chance to recover from the undoubted shock it will receive should it leave the EU with no deal. Whether the cuts are maintained will depend on the Bank of England’s attitude to a plunging pound.

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A devastating hit on the pound would cause inflation to rise markedly and part of the Bank’s remit is to keep inflation at 2%. It’s an interesting tight rope to walk for the Bank of England Monetary Policy Committee when it comes to interest rates!

. Alistair Murdoch