By Philip Robotham, Head of SA Wealth, Client Group at Schroders

The implications of the US election and UK Budget and what is in store for the next round of central bank meetings.

2024 US election: what are the implications for interest rates?

Donald Trump’s proposed “reflationary” fiscal policies, which are centred around tax cuts, will likely boost US growth at the cost of more persistent inflationary pressures.

US interest rates probably need to be kept above the “neutral rate” of about 3.5% to avoid monetary, or central bank, policy being reflationary.

In addition, Trump’s policies might even mean that the Federal Reserve had to start raising US interest rates again in 2026.

Neutral is a theoretical interest rate deemed nether too restrictive nor too loose for growth and inflation to settle back on steady, stable paths.

UK Budget 2024: What might it mean for the UK economy?

Since the new UK Government delivered its first Budget, doubts have built around whether its fiscal policies, centred around higher spending, will deliver growth as well as raise productivity.

In the wake of the Budget, independent growth forecasts from the Office for the Budget Responsibility were downgraded from 2026 onwards to 1.6%.

Markets judge UK interest rates will need to be higher for longer to offset more persistent inflationary pressures and maintain price stability as the economy grows in the absence of productivity improvements.

US, European and UK central banks continue to face descent from peak rates

Following the latest US, European and UK rate-setting meetings, we have seen a reduction of 0.25% in rates. The next round of meetings for each region will take place in December. Heading into 2025, markets are likely to focus on the impact of fiscal policy changes on central bank policy.