US Rates Up UK Rates Frozen

US Rates Up UK Rates Frozen.

Today the Bank of England left interest rates unchanged at 0.25%pa whereas yesterday the US Federal Reserve Bank increased rates to between 0.75% and 1.0% p.a.

The US economy has been warming up, jobs data is good and prices inflation is moving up.  It makes sense to take action to slow the economy down a little.

The UK is different and we believe the Bank of England is caught between ‘a rock and a hard place’.  The economy is buoyant, inflation is rising so interest rates should rise.

That said, Brexit is looming. The one thing holding the UK economy up is the weak pound.  A weak pound (keeping interest rates low aids this) means bigger profits for FTSE 100 companies as their profits are mainly earned overseas and then converted via a weak pound into greater UK profits.  In addition, a weak pound means British goods are cheaper overseas, its means we will export more goods and services as they are cheaper to foreign buyers. 

Likewise, a weak pound means the UK is attractive to overseas investors (both domestic and business) and also good for tourism.  We are a cheap place to invest in business, buy a property or come on holiday for an overseas investor with a stronger currency than then pound.

We believe Bank of England is trying to balance the two with Brexit coming, we probably need a weak pound.