Yahoo Finance How will a US interest rate hike affect the UK?
It is widely expected the US central bank – the Federal Reserve will raise interest rates.
The Federal Open Market Committee (FOMC) meeting is held over two days – March 15th and March 16th.
What impact will the Fed’s decision have for the UK?
The Fed’s decision to raise interest rates shows that the US economy is strong and “on the road to normalisation and growth”.
On March 10th, the US Labor Department said the unemployment rate fell 4.7%, and wages grew 2.8% from February 2016. The 235,000 increase followed a 238,000 rise in January that was more than previously estimated, in fact it was the best back-to-back rise since July.
The Dow Jones Industrial Average Index (DJIA) has also hit an all time high, reaching 20,000 on January 25th 2017 – signifying a strengthening US economy.
Adrian Lowcock, investment director at Architas says: “A healthy US economy is good for the rest of the world as the US remains the world’s largest economy.”
[graphiq id=”h6oBNfO2Kix” title=”Unemployment Rate in the United Kingdom” width=”600″ height=”521″ url=”https://w.graphiq.com/w/h6oBNfO2Kix” link=”https://www.graphiq.com/vlp/h6oBNfO2Kix” link_text=”InsideGov | Graphiq” ]
So why should UK investors and homeowners keep their eyes on the Fed’s decision?
Henry Croft analyst at Accendo Markets says: “A strong US economy helps consumers around the world, whether due to trade implications or just general consumer confidence.”
Croft says: “The European Central Bank [ECB] has joined the Fed in becoming gradually more hawkish as 2017 goes on and, not wanting to be left behind, Mark Carney ‘and co’ could themselves look to join the tighter monetary policy bandwagon, although looming Brexit uncertainty may limit their ability to do so.”
Patrick Connolly at Chase de Vere explains a potential rate rise in the US may not be good news for homeowners: “The cost of borrowing increases and so individuals and businesses are both likely to have less money to spend on goods and services because they are paying more on mortgages and other debt.”
Written by London-based journalist Tanzeel Akhtar. Her work has been published in the Wall Street Journal, FT Alphaville, CNBC, Citywire, Euromoney, Interactive Investor.
