Chance of earlier rate hike rising - Reuters poll

LONDON Thu Apr 19, 2012 7:20am BST

The Bank of England is seen against a blue sky in the City of London October 6, 2011. REUTERS/Suzanne Plunkett

The Bank of England is seen against a blue sky in the City of London October 6, 2011.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - The Bank of England is probably near the end of its asset purchase programme, with chances rising of a rate hike coming sooner as inflation stubbornly sticks above target, a Reuters poll found on Wednesday.

The poll of 47 economists was taken after minutes from the Bank's April meeting poured cold water on hopes for more stimulus, and comments from BoE Deputy Governor Paul Tucker showed growing concern about inflation.

"There's less appetite for QE on the committee," said Philip Shaw, chief economist at Investec, referring to the banks asset-buying quantitative easing programme.

Now only a handful of economists are expecting another round of asset purchases above the 325 billion pound programme. And a rising number - albeit few - are re-visiting their long-standing view that interest rates will stay at record lows for years.

The key Bank Rate is still expected to hold at 0.5 percent until the end of next year, according to the consensus, but a growing minority now see the Bank hiking before then - as long as growth prospects steadily improve.

While about 40 percent of economists saw an interest rate rise by the end of next year in a poll two weeks ago, that percentage has climbed closer to 50 percent. That coincided with a big rise in sterling on foreign exchange markets.

Minutes to the Monetary Policy Committee's April meeting published on Wednesday showed that Adam Posen, a long-standing advocate of more money printing, or quantitative easing, had unexpectedly dropped his call for more stimulus.

Other MPC members were worried the BoE's anti-inflation commitment risked being called into question and only one of the nine, David Miles, continued to support more QE.

The BoE targets the Consumer Price Index at 2 percent but has consistently underestimated actual inflation for many years. In its February projections, it expected inflation to be around 3 percent now. The latest data showed it 3.5 percent.

"Posen dropped his call for more asset purchases; and secondly ... the committee as a whole remarked that there's a greater chance that above-target CPI will persist in the medium-term," said Investec's Shaw.

A small minority, 8 of 46, still see the bank adding to the programme in May. Michael Saunders at Citi, who has been expecting a whopping 500 billion pounds total in QE, or roughly a third of Britain's gross domestic product, stuck to his forecast.

Inflation rose in March for the first time in six months as the cost of food, clothing and recreation pushed consumer price inflation to 3.5 percent.

The poll predicted inflation will not fall back to target until early next year.

Tucker, the deputy governor, said in a speech on Wednesday that inflation is uncomfortably high and will probably not fall as fast as the bank has forecast, giving a strong hint that another cash boost for the economy is off the table.

SKIRT RECESSION

The poll showed the British economy will skirt recession, having grown 0.2 percent in the last quarter.

Growth will dip to 0.1 percent in the current period but pick up to 0.4 percent next quarter, forecasts little changed from last month showed.

Growth will be 0.6 percent this year and 1.7 percent next, also little changed from last month and come after the International Monetary Fund raised its 2012 GDP forecast to 0.8 percent and the 2013 forecast to 2.0 percent on Tuesday.

The revisions are supported by data from service sector firms, which make up the bulk of Britain's economy and saw business unexpectedly gather pace in March, echoing surveys of the construction and manufacturing sectors.

And retail sales grew 0.5 percent in March after falling 0.8 percent in February, data is expected to show on Friday.

Tesco (TSCO.L), the world's No.3 retailer and which makes over 70 percent of its profits in Britain, posted annual pretax profits in line with expectations on Wednesday after issuing its first profit warning in over 20 years in January.

But the supermarket chain, which accounts for one in every 10 pounds spent in Britain, has announced plans to invest 1 billion pounds in its British stores and hire 20,000 more staff.

Unemployment levels ticked down from a 16-year high in the three-months to February, dipping to 8.3 percent, official data showed earlier on Wednesday, but the poll predicted it would creep up to peak at 8.9 percent at the start of 2013.

(Polling by Ashrith Doddi and Rahul Karunakar. Editing by Jeremy Gaunt.)

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