The U.S. Federal Reserve has been slowly raising the federal funds rate since the first increase in December 2015. The Fed waited one year for the second increase but the pace has since picked up and there have been three increases in 2017.
It is not only the U.S. which has entered the rate rise part of the cycle. Mexico has been raising its official rate through 2017 and the Bank of Canada caught some investors by surprise with a rate increase in the first week of September. While the official rate in Canada is still only 1.00%, the latest rate rise has come only two months after its first rate rise since 2010.
Now the Bank of England is warning of a rate rise. If it were to raise its official rate, it would join an expanding group of countries which are moving away from ultra-low interest rates, a process the Fed refers to as “normalisation”.
The British economy recently recorded an unemployment rate of 4.3% while the consumer inflation rate rose to 2.9% in August. The BoE expects this rate to rise above 3% in October as the economy expands and price pressures build. “Recent developments suggest that remaining spare capacity in the economy is being absorbed a little more rapidly than expected at the time of the August Report, and that inflation remains likely to overshoot the 2% target over the next three years.”
