Analyst: Fed Poised to Cut While BoE Holds, Leaving UK with Higher Borrowing Costs
Hamish McRae says U.S. rate cuts are likely this week amid political pressure on the Fed, while sterling yields remain elevated due to market distrust
Financial commentators expect the U.S. Federal Reserve to move toward lower interest rates this week while the Bank of England is likely to hold policy steady, a divergence that analysts say will have significant implications for U.K. borrowing costs.
In a column published Sept. 13, 2025, columnist Hamish McRae argued the Fed is “almost certain” to cut rates, whereas the BoE is “almost certain” to keep them unchanged. McRae cited slightly lower U.S. inflation, continued U.S. economic growth and political pressure on the Fed as reasons the U.S. central bank may lean toward easier policy, while the U.K.’s weaker growth and higher sovereign borrowing costs make the BoE more reluctant to follow.
McRae noted that the U.K. must pay a premium to borrow in sterling, reflecting a lack of trust among global investors in the British government, its currency and, by implication, parts of its monetary framework. He cited yields on 10-year U.K. government debt at about 4.7% compared with roughly 3.4% for Greece, underscoring the unusually high cost of U.K. borrowing relative to some other developed economies.
The column also highlighted the broader backdrop for central-bank credibility. Gold was trading near an all-time nominal high of about $3,650 an ounce and, after adjusting for inflation, was above the 1980 peak — a level McRae said signals investor concern about the durability of central-bank price stability. The Bank of England’s latest survey of five-year inflation expectations, published earlier this year, put expectations at about 3.8%, above the 2% targets most major central banks use as a benchmark.
Political developments in Washington were identified as a potential influence on Fed behavior. McRae described sustained criticism by former President Donald Trump of Fed Chairman Jerome Powell and other officials, and noted that Powell’s term ends in May 2026. He said appointments to succeed Powell could shape the Fed’s inclination toward lower rates in the coming years, but added that, so far, markets had not reacted with a run on the dollar or a sharp jump in U.S. borrowing costs.
Economists and market participants generally assess monetary policy by weighing inflation trends, growth momentum, and financial stability risks. In the U.S., measured inflation has eased from peaks seen in prior years, and the labor market remains tighter than in many other advanced economies, giving the Fed scope to consider rate reductions if incoming data confirm a sustained slowdown in price pressures. In the U.K., weaker growth and higher long-term yields complicate the BoE’s decisionmaking, as cutting too soon could risk further elevating inflation expectations or adding pressure on the pound.
McRae cautioned that any weakening in central-bank credibility would have global consequences. If investors lose confidence in the Fed’s ability to control inflation, he wrote, markets could demand higher yields across sovereign debt markets, including the U.K., where borrowing costs already include a premium. That would raise costs for households seeking mortgages and businesses planning investment, and complicate fiscal planning for the Treasury.
Financial markets so far have priced in a modest divergence between Fed and BoE policy. Traders’ expectations for U.S. policy rates have moved toward potential reductions in the coming months, while expectations for sterling rates remain higher than for dollars or euros. Analysts said the linkage between U.S. and U.K. yields means any meaningful shift in U.S. borrowing costs would likely be transmitted to the U.K.
The dynamic will be one to watch for the Treasury and prospective borrowers in the U.K. ahead of the next Budget, McRae wrote, noting that the Chancellor must frame fiscal policy with an eye to the market premium that has raised sterling borrowing costs. He added that the Fed’s actions matter globally because many countries’ borrowing costs track those in the U.S.
Market participants will monitor upcoming inflation readings, labor-market reports and Fed and BoE communications for signals on the trajectory of policy. Officials at both central banks have emphasized data dependence. For now, the prevailing view in the column and among some market observers is that a U.S. rate cut is more likely than a comparable easing from the Bank of England, and that the gap will have tangible effects on borrowing costs and financial conditions in the U.K.
The analysis appeared in the Daily Mail’s finance pages and reflects the columnist’s assessment of recent data and market behavior rather than a formal forecast from either central bank.