What's going on?
The Bank of England (BoE) and Reserve Bank of India joined the US Federal Reserve on Thursday in flagging slower future interest rate hikes.
What does this mean?
India’s central bank lowered interest rates on Thursday, surprising investors and consumers alike with reduced borrowing costs – which may increase spending. And the BoE, while leaving rates unchanged, lowered its forecast for UK economic growth this year. It now expects growth of just 1.2% – the lowest since the country emerged from the throes of financial crisis-induced recession a decade ago. It (gulp) reckons there’s a 25% chance the UK falls into recession this year – and doesn’t think the British economy can stomach previously-expected higher rates, at least for now.
Stateside, the Federal Reserve said something similar at the end of January – that US rate rises were effectively on hold for now and it’d be flexible in removing the other market supports of the last decade.
Why should I care?
For you personally: There’s good news and bad news.
Slowing – or declining – interest rates might be good news: borrowing money won’t be as expensive as quickly, and further spending may help boost economic growth. But consumers aren’t immune to the rising uncertainty that’s causing major central banks to pump the brakes – they might slow their spending while awaiting clarity on the economic future. Data from the US this week showed low mortgage rates weren’t enough to encourage rising applications, reversing January’s optimism.
For markets: Wait and see…
According to analysis by Goldman Sachs, the global stock market’s January rise might be most of what it has to offer this year (tweet this). When US interest rate rises have slowed in the past, stocks have tended to rise 15% over the following year – and January’s jump was more than half that. (Goldman expects Europe to have a similarly tepid remainder of the year.) However, an elusive trade deal between China and the US could provide a boost.