BoE Resists Fed Rate Hike Pressure

The Bank of England (BoE) has been under scrutiny after the Federal Reserve's recent rate hike. Standard Chartered's Christopher Graham examines whether the BoE will feel pressured to follow suit. The Fed raised its policy rates by 25bps on September 16, while the BoE held its rate at 3.75% just a day later.

Graham notes that historical evidence shows increased policy convergence between the Fed and the BoE since the turn of the millennium. However, he stresses that this convergence is not automatic and that UK data and market credibility play a significant role in the BoE's decision-making process.

The exchange rate channel is also cited as a key factor in the BoE's sensitivity to Fed tightening. Higher US interest rates attract capital inflows, leading to relative GBP weakness and an increase in imported inflation.