UK and European Union businesses could witness further interest rates cuts in their jurisdictions once the Federal Reserve begins its own cuts, expected to start next week.

George Lagarias, chief economist with Forvis Mazars, said on Board Agenda’s The Macro Memo podcast that a reduction in the headline rate by the Fed would leave the door open for the Bank of England and the European Central Bank to make their own further cuts.

He said he was optimistic for a rate cut when the Fed meets on 17 and 18 September and that he now believes it could cut rates a second time in 2024.

In anticipation of a Fed decision, the ECB cut rates this week for the eurozone by 0.25% to 3.5%.

But, he added, the Fed’s decision will likely prove a benefit to the UK and Europe. With growth of 2% in the US and less than 1% in the UK and EU, central bankers in London and Frankfurt were reluctant to act on rates still further. “They couldn’t get started for fear of capital flight—until the Fed got started,” said Lagarias. He added: “We are entering a rate cut cycle.”

Record levels of inflation

Rates have been high to counter record levels of inflation. At its peak, inflation in the UK reached 11% and, in the US, 8%. This week, consumer price index figures in the US show inflation was down to 2.5% in August, further cementing an expectation that rates are about to fall.

The podcast also heard that new UK prime minister Sir Keir Starmer has begun the work of bringing the UK and EU closer together, with a series of visits to French president Emmanuel Macron and German chancellor Olaf Scholz.

Starmer’s visit to Germany involved a bilateral agreement to seek closer working on issues like the economy.

Mark Kennedy, partner at Forvis Mazars, said in the podcast discussion that the visits were a “good start” in mending trading relationships between the UK and EU, and demonstrated “positive symbolism”.

“I don’t think anything is going to happen overnight. This is a long, slow process that will be worked out by senior civil servants over months and years,” Kennedy said.

He added that “what was interesting about the visits in the summer was that it was a statement about collaboration and wanting to work together …which is a tonal change.”

Tune in to the latest episode of The Macro Memo podcast for analysis and expert insight about the impact of upcoming events on business and the economy, in partnership with Forvis Mazars.

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