Interest rates, the pound and good news for Brits

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In an environment where the U.S. Dollar is rising and everything is falling, one needs to pay attention to the fine details. For me, its in the UK and its 5% base interest rate.

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Oil is now below $117 a barrel, so it stands to reason that inflation hawks around the world can get in the backseat, take a load off and let the economy hawks do the driving. That means interest rates are not going higher. They are going lower. And where does the central bank have the most room to cut? At the Bank of England (BoE).

I expect the BoE to start cutting rates aggressively once its obvious that inflation is to remain muted. The result will be a fall in Sterling and a boost to the UK economy when it needs it most.

I reckon the BoE feels mighty good about its base rate being so high because it gives them lots of room for stimulus. The Fed, with its puny 2% base rate, doesn’t have nearly the same ability to reflate.

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