The chief economic adviser at Allianz, and President of Queens’ College, Cambridge, Dr Mohamed El-Erian, when speaking last Thursday on the BBC Radio 4’s World at One program declared that last week’s rate cut was entirely as expected and got eight out of nine votes from the members of the Monetary Policy Committee of the Bank of England. He then went on to add that the market sees the ultimate destination for the bank rate at about 4.1%, so three more cuts over the next three quarters with every quarter seeing another quarter of a percent reduction. 

When asked about the economic effect caused by Donald Trump’s election win, Dr El-Erian suggested it gives greater uncertainty which in turn makes it harder to forecast the economy as external events become more fluid, and he cited three things to come from the US:

The first being tariffs which he said can complicate growth outlook and contribute to global inflation.

The second element would be an increase in the budget deficit in the US. That will tend to push up interest rates there, and because the UK competes on global markets for capital, with the US paying more for its debt, the UK will face pressure to also pay more.

The third element will be what the Federal Reserve does. The expectations are the Fed will move at the same pace as the BOE, to the same terminal point, but if the Fed changes, again that could put pressure on us.