US Freezes Interest Rates Will UK Cut Rates

US Freezes Interest Rates Will UK Cut Rates?

Last night, the US Federal Reserve chose to keep interest rates frozen at between 0% and 0.25% despite the fact that some commentators were expecting a marginal increase. The Fed suggested that a global economic slowdown driven by the slowdown in the Chinese economy had influenced their decision. This means that interest rates in the United States have been held at these low rates since 2008. Inflation in the US remains at 1.2% which is below their target trend growth rate of 2%. In short, despite earnings, employment and house prices all being at or above their pre-credit crunch levels, there are still fears that the recovery will be put into reverse.

Given the news earlier this week that the United Kingdom had once again entered 0% inflation with a risk of deflation there have even been suggestions today that the Bank of England could reduce interest rates by another 0.25% to bolster the economy and encourage inflation despite the fact that the governor of the Bank of England, Mark Carney, has already committed to raising interest rates in the course of the next few months and more likely in the first or second quarter of 2016.

Stock markets have not reacted all that well today as one would expect with Europe falling heaviest, US markets falling as well as the UK and most of the Far East although China showed a slight improvement given that no increase in US, UK or European interest rates may mean that Chinese goods will remain cheaper in the West and thereby support Chinese exports.

It is going to be a long and rocky road with China being the driving force for economic confidence globally. That said, do expect interest rate increases in the US before the end of the year and for the UK likely in quarter one or quarter two of 2016.