There has been a slow but definite straining of the links between the United States and United Kingdom economies over the past year, with the former growing in strength and momentum and the latter flattening out at best.
For much of the post credit crisis period, it has widely been seen as a world of two speeds, in monetary policy terms. There has been the US and UK operating on one level and the rest of the world, led by the eurozone and Japan, firmly at another.
The widespread assumption has been that the Federal Reserve will enter a tightening cycle first, but followed very closely by the Bank of England. There was even a spell during mid 2014 when it seemed the UK would get off the rate raising mark slightly ahead of the US, given the strength of the UK’s GDP growth.
While this consensus has been gradually unravelling over the past few months, last week’s events pulled the rug out from under it entirely.
Just as Mark Carney was kicking a rate rise into the long grass, the US Labor Department was revealing blockbuster jobs growth, suggesting the long-awaited Fed rate rise is now imminent.
There is of course the possibility that the Fed rate rise itself when it comes will dampen enthusiasm for US equities, but given it is likely to be a quarter point at most and has been so clearly indicated ahead of time that effect should be limited.
It is not only in the economic data that differences are growing. Politically, there are very different pictures developing, which are feeding into the forecasting and may start to impact markets more over the coming months.
