US inflation has been sustained in part because of its tight jobs market. The hot economy created enormous demand for workers, pushing up pay and so driving inflation.
Wages have also provided a headache for the Bank of England, with UK pay still rising at more than 6pc annually.
“The question will be whether there are any similarities in the US experience with the UK, which suggest some risks with cutting rates,” says Rob Wood at Pantheon Macroeconomics.
“In the UK’s case the labour market remains tight, wage growth is stronger than the US, inflation remains higher, at least until the next release, and growth is picking up pretty sharply, according to business surveys.”
The situation in the eurozone is somewhat different. While its jobs market has recovered from the pandemic, at 6.5pc unemployment is still far higher than Britain’s rate of 3.9pc, giving Lagarde and her colleagues fewer worries over a wage-price spiral.
Then comes the exchange rate threat.
Britain has just about overcome a wave of imported inflation from energy prices and international food markets.
If it moves before the Fed, it risks depressing the pound and so pushing up import costs again.
“If you move significantly further and faster than the Fed, you may find you are generating more inflation as sterling falls, which would be pretty inconvenient if you have just gone through a period of battling very high inflation,” says Pantheon’s Wood.
Regardless of the precise timing of the Bank of England’s first rate cut, higher borrowing costs in the US will have an impact on this side of the Atlantic, so even if Britain does lead the charge, the effect risks being distinctly underwhelming.
“It keeps monetary conditions globally tighter than otherwise, because the US is such a dominant player,” says the EY Item Club’s Beck.
“Market rates in the UK would still go down because of the Bank of England cutting, but it would not go down as much because of the gravitational pull of investing in the US, where returns are higher.”
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