It has been years since the US Federal Bank is in an ongoing competition against the Bank of England.
Both are dominant sources of power and money in their countries, so the following question remains: which country’s central bank will move out of competition first?
As Ulrich Leuchtmann, an employee of the Fed, admitted:“The youngsters on our trading floor cannot even remember the last time that the US central bank increased its rates”. The British bank had a slump in its growth over the past few years, mostly due to the decreasing oil prices, as well as due to the accelerating impact those have had on inflation.
Even though no evident or formal link exists between these two units, the widespread expectation is for the British bank to be the next central bank after the Fed to raise rates. Moreover, this expectation is reinforced by the UK’s economic recovery, which resulted in a strong labour market and a solid growth. Nonetheless, the path of increases, as Mark Carney, the Bank of England’s governor, stated, will be “limited and gradual”.
The US Federal Bank’s expansion also has major influence on the Eurozone, as their policy would put single currency under pressure against the american currency : dollars. The Bank of England is the only european bank which could follow the Fed’s lead and hike their interest rates. Unfortunately, the UK’s inflation largely trails behind the US bank’s goal, and only one of the nine-member monetary policy committees voted for a rate hike.
As you read this article, banks continue to expand and to increase their values and strategies in order to make more profit; however, the United States are not ready to give up their worldwide monetary domination yet– and certainly not for the Bank of England.
by Paloma B.
One of the many things that the UK is best known for is its loyalty towards decisions taken by the United States, which may sometimes result in the UK following the US into utter disaster. A poignant example of this type of scenario is the intervention in Iraq, in 2003.
Same goes for the Federal Reserve Policy, except that, this time, it isn’t necessarily a catastrophic decision. Also, it wasn’t the British government which made the decision to follow the United States; it is the British people themselves.
British markets don’t believe in Britain’s central bank anymore. In 2013, mortgage costs stagnated, because the Bank of England had modified its interest rates.
Furthermore, the Bank signaled in August 2013 that it planned on keeping rates on hold at a rate of 0.5 %, the lowest one to-date, until 2016. Markets expected that interest rates would begin to rise much sooner, as early as the end of 2014. Part of the reason for this is the US Federal Reserve’s imminent decision to wind down its stimulus program (which is a package of economic measures aiming at reinvigorating the economy and preventing or reversing a recession by boosting employment and spending).
Currently, the question revolves around who, between the Bank of England and the Federal Reserve, will be the one to make the first move on rising interest rates. The Fed was the last one of the two to have pulled the trigger on augmenting them– traders and journalists may be less sanguine next time the Fed does so. It has indeed been more than six years since it has even changed its key policy rate, let alone increased it. Some workers in the markets have never even witnessed a rate hike.
by William H.
On the 17th of September 2015, the United States Central Bank officially announced its decision to keep their interest rates at the same level, where it stands since 2006. Following this news, many could suspect the Bank of England to follow the footsteps of America and, at last, increase the rates after six years of keeping the rate at its lowest: only 0,5%. This influence is very possible keeping in mind that the United Kingdom and the United States have very similar broad swings of interest rate policy.
However, the variations are not indistinguishable and tariffs can deviate for rather a while. This is one of the reasons why the thought of « holding fire » (Roger Bootle) is still dominant at this stage as until 2016 there is, unlike in the US, a possibility of a continued fiscal shrinking in view and the housing market is particularly weak. Furthermore, the Overvaluation of the exchange is a beyond weighty aspect for a seriously trade-dependant economy such as the UK, this compared to the US. Moreover, the UK inflation stays majorly beneath the Bank of England’s goal. During their last gathering, just one of the nine associates of the monetary policy committee supported a rate escalation.
With all these reflections, we can settle that even though the UK and US economies have many similar aspects, the Fed’s Bank policies will not, at least in the upcoming months, be the lead for a change of the interest rates in the UK.
by Emily D.