The Bank of England (BoE) will start to tighten the screws of monetary policy earlier than the Federal Reserve but will raise rates at a slower pace than its U.S. counterpart, according to Goldman Sachs.
The BoE will begin raising interest rates in the first quarter of 2015, while the Fed will wait until the third quarter, Goldman Sachs economists led by Huw Pill wrote in a note on Friday. The U.K. central bank appears more hawkish than its U.S. counterpart, they said.
“We expect U.K. rates to rise by around 75 basis points per year vs. 100-125 basis points per year in the U.S. [between 2015-2018],” Pill said.
The difference in the speed of interest rate hikes comes down to the different cyclical positions of each economy.
“Looking forward, we expect U.K. GDP (gross domestic product) growth and the pace of the decline in U.K. unemployment to moderate in the quarters ahead, both in absolute terms and relative to the U.S. All else equal, this would imply the need for a slower pace of tightening in the U.K.,” Pill said.
Britain’s economy grew 0.9 percent in the three months from April to June this year, the quickest increase since the third quarter of 2013. The U.S. economy, meanwhile, expanded at a 4.6 percent annual rate over the same period, its fastest pace in 2-1/2 years.
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