UK should weather rising US interest rates well

Even if the US Fed holds fire this week, US interest rates will be rising soon – and, in our view, quicker than markets expect. Turning points in UK monetary policy are often close to US ones. But there are good reasons, such as the bigger fiscal tightening in the UK, for the MPC to lag behind.

Meanwhile, the fact that the US is raising rates because of the strength of its domestic economy should prevent US demand for UK exports from weakening too much. We think that the UK will be able to weather rising US interest rates well, regardless of when exactly that starts to happen.