End of cheap cash as US hikes rates

AMERICA’S central bank raised interest rates in the United States last night – and hinted another increase was likely before the end of 2017.

In a sign of confidence in the world’s largest economy, the Federal Reserve lifted its benchmark rate from between 0.75pc and 1pc to between 1pc and 1.25pc.

It was the fourth rate rise since December 2015 and the third in the last seven months. Fed chair- man Janet Yellen indicated that further rises would follow including one more before the end of 2017 and three in 2018.

The Fed also said it will start unwinding its huge money-printing programme – known as quantitative easing – which it launched to prop up the economy.

The rate hikes in the US have signalled that the era of cheap money is coming to an end. But there has been no such signal in the UK where the Bank of England last year cut interest rates to a record low of 0.25pc following the Brexit vote.

The Bank is expected to leave rates at 0.25pc today, to balance the threat of higher inflation with subdued wage growth and the uncertainty facing the economy after the general election.

Official figures this week showed inflation is now running at 2.9pc – its highest level for nearly four years and well above the Bank’s target of 2pc.

Chris Williamson, chief business economist at IHS Markit, said: ‘It seems increasingly likely that Bank of England policymakers will keep interest rates on hold – looking through the temporary rise in inflation – until the economic outlook starts to clear and prospects improve.’