Economy maintaining momentum as BoE holds steady - Reuters poll

LONDON Wed Apr 16, 2014 3:25pm BST

The logo is seen at the Bank of England in the City of London January 16, 2014. REUTERS/Luke MacGregor

The logo is seen at the Bank of England in the City of London January 16, 2014.

Credit: Reuters/Luke MacGregor

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LONDON (Reuters) - Britain's economy kept up its strong rate of growth at the start of 2014 and is expected to slow only marginally as the Bank of England leaves its main interest rate at rock bottom for another year, a Reuters poll found.

The poll of 50 economists, taken in the past week, suggested Britain's gross domestic product expanded 0.7 percent in the first three months of 2014, matching the previous quarter and making it one of the fastest-growing major countries.

If the forecast, revised up a touch from a March poll after a slew of positive data, is realised, Britain's economy will be back to its size before the financial crisis by the end of June.

"Policy is very loose and the euro zone crisis has receded - I think growth is going to be well above consensus," said Michael Saunders, economist at Citi, who has one of the more optimistic forecasts and aggressive rate hike paths.

Over half of the contributors who were in this poll and a March survey upgraded forecasts as factories have been ramping up production, industrial output has jumped and retail sales have improved while booming house prices have helped drive a consumer-led recovery.

"Given the bits of information we have had for Q1 my bean count comes out as 1.0 percent growth," Saunders said.

Median forecasts from the poll were not quite so optimistic, pencilling in 0.6 percent growth per quarter from July but suggest the economy would end this year 2.8 percent bigger than it was in January, an improvement on the March poll's 2.7 percent prediction.

That compares with quarterly growth of just 0.3-0.4 percent in the euro zone, Britain's main trading partner, where the recovery has struggled to gain traction and the threat of deflation has reared its head.

CONSTANT RATE REMAINS

The Bank said last year that monetary policy would remain unchanged until unemployment fell to 7 percent, something it thought would take around three years to reach.

The Bank abandoned this after just six months as unemployment sank - it fell to a five-year low of 6.9 percent in the three months to February - and said it would instead focus on a wide range of measures, muddying the waters for forecasters.

Still, only three of the 45 economists polled said borrowing costs would rise from the current 0.5 percent this year, and even then not until October at the earliest.

As in recent Reuters polls, the median forecast was for a 25 basis point hike in the second quarter of next year, followed by a similar move the quarter after.

"With inflation trending downwards, we reiterate our belief that rates will stay lower for longer," said Elizabeth Martins at HSBC, who says rates won't rise until at least July 2015.

Inflation fell to just 1.6 percent on the year in March, its lowest in over four years, and while it is expected to edge up in the coming quarters it won't reach the BoE's 2 percent target until early next year.

(Polling by Hari Kishan and Siddharth Iyer; Editing by Hugh Lawson)

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