Abu Dhabi: The UK’s historic vote to leave the European Union is likely to slow down plans by the US Federal Reserve to hike interest rates, analysts said, as Brexit signals plenty of uncertainty in the UK’s economy.

Last week, even before the UK had voted to leave the EU, Janet Yellen, chair of the Federal Reserve, said she expected rates to remain low for some time on the back of headwinds in the US economy.

Brexit, which sent the sterling to 31-year lows and crashed global equity markets, will only add another hurdle to the headwinds the Federal Reserve is facing.

“The Fed rate hike may not happen in 2016, which could be a comforting factor for equities,” said Vijay Harpalani, fund manager at Al Mal Capital in Dubai.

Analysts had expected at least one rate hike this year, and potentially two. According to a Bloomberg survey, investors now see no chances of a hike in July, September, or November, and just a 10 per cent chance of a hike in December.

Michael Feroli, chief US economist at JPMorgan Chase & Co, said on Friday he expects no move in interest rates until December. On June 15, he reduced his forecast for the number of rate hikes in 2016 to one from two, saying that would most likely come in September.

Next hike

Meanwhile, Millan Mulraine, deputy head of US research and strategy at TD Securities in New York, now believes the Fed will wait until mid-2017 for its next hike. Mulraine previously expected a move in September and two next year.

But after the Brexit, some analysts even went as far as saying the Fed could lower interest rates, possibly into negative territory. While this is certainly not the direction Yellen hopes to move towards, when asked about it, she didn’t rule it out.

“I believe we do have the legal basis to pursue negative rates but I want to emphasise it is not something that we are considering. This is not a matter that we are actively looking at, considering when we’ve looked at that in the past, we have identified significant shortcomings of that type of approach,” Yellen said in a speech last week.

However, she also signalled she is wary of the repercussions of the Brexit and what it means for global economy.

“I think it would usher in a period of uncertainty and it is very hard to predict, but there could be a period of financial market volatility that would negatively affect financial conditions and the US economic outlook. That’s by no means certain, but it is something that we will be carefully monitoring,” Yellen said.

Dollar liquidity

She, however, did not schedule any special meetings to talk about the outcome of the EU referendum, but a statement on Friday said the Federal Reserve is “prepared to provide dollar liquidity” to address pressure in markets.

The statement echoes similar ones from the Bank of England and the European Central Bank, with the latter saying it is ready to provide additional liquidity for financial markets if needed in euro and foreign currency.

Mark Carney, governor of the Bank of England, said the bank “stands ready to provide more than £250 billion of additional funds,” and is also able to provide “substantial liquidity” in foreign currency.

— With inputs from Bloomberg