Matthew Lynn Matthew Lynn

If the Fed kick-starts global rate rises, the UK shouldn’t be left behind

One is growing at 2.9 percent, the other at 2.1 percent. In one retail sales are growing at 1 percent, in the other at 7.5 percent. In one wages are growing by 2.4 percent a year, in the other by 2.3 percent. In one, the establishment is coming to terms with a populist revolt against the elite. In the other, the establishment is, er, coming to terms with a populist revolt against the elite.

What are they? They are, of course, the US and the UK economies. What is remarkable right now is how similar the economic outlook is in both countries. True, there are some minor differences, with the Americans doing better on some measures, and the British on others. But from simply looking at the statistics, it is quite hard to tell them apart. Their performance is just about the same.

And yet, here is an odd thing. Tomorrow, 14 December, the Federal Reserve will almost certainly raise interest rates, for the second time this year. Over on this side of the Atlantic, the Bank of England cut rates in the summer, and shows absolutely no signs of raising them any time soon. There is more chance of Mark Carney appearing on Strictly next year than the Bank following the Fed with an upwards move in rates when it announces its latest decision on Thursday.

But if the US starts to normalise rates, that will influence the price of money globally. Increasingly, it will make less and less sense for the UK to be left behind. True, you can argue about whether the UK is ready for a rate rise. It has all the uncertainty around Brexit to contend with, although by now it should be clear to even the most die-hard Remainer there has been very little short term impact from that, and there probably won’t be much in the long-term either.

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Matthew Lynn
Written by
Matthew Lynn
Matthew Lynn is a financial columnist and author of ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’ and ‘The Long Depression: The Slump of 2008 to 2031’

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