LONDON (Reuters) - The likelihood that the Bank of England will raise interest rates this year has risen but the consensus in a Reuters poll still doesn't expect a hike until early 2015.
Britain's economy is now larger than it was before the financial crisis but the growth rate probably peaked last quarter and the central bank will be mindful that any rise in a record low interest rate could threaten that rally.
"The recovery has been quite strong and they don't want to kill it off straight away. It still has a long way to go, and there is no sign of wage inflation and inflation is still well below target," said Lars Lundqvist at 4CAST.
Gross domestic product will grow 0.7 percent this quarter and next, down from the previous 0.8 percent, and then slow further to 0.6 percent per quarter next year, according to the poll of over 50 economists taken in the past week.
There is a median 45 percent chance that Bank Rate will rise from 0.5 percent this year, more than the 40 percent in a July 30 poll. The latest poll gave an unchanged near-certain 90 percent chance the Bank would have acted by the end of 2015.
The poll said interest rates would rise to 0.75 percent in the first three months of next year and then 25 basis points per quarter to end 2015 at 1.5 percent - still very low by historical standards.
Even by the end of 2016 Bank Rate will only be at 2.25 percent and by December 2017 it will sit at 3.00 percent, according to the poll. In mid-2007 the Bank raised the rate to 5.75 percent.
Bank policymakers will be keen not to make the same mistake as the European Central Bank made in 2011 when it raised rates before being forced to make an abrupt about-turn just several months later and cut them again.
The sterling overnight interbank average, or SONIA GBPOIS=ICAP, says markets are pricing in a chance of a rate hike in January. The currency GBP= has gained over 1 percent on the dollar since the start of the year.
The Bank is not expected to make many changes to its own growth and inflation forecasts on Wednesday and market watchers will be eager to see what the minutes from its August meeting reveal when they are published on August 20.
At least one member of the Monetary Policy Committee is likely to have voted for an increase this month, an earlier Reuters poll found, but the majority will wait until workers' pay has picked up. [BOE/INT]
Pay has started to rise but increases have failed to keep pace with inflation.
Bank Governor Mark Carney has repeatedly stated that any interest rate rise would be "data dependent" and while figures have shown the economy is performing well, wage growth has not picked up as the BoE forecast.
The Bank is expected to revise down its own 2014 and 2015 wage growth forecasts from 2.5 percent and 3.5 percent on Wednesday. The poll pegged wage inflation at 1.5 percent this year and 3.0 percent next year.
Inflation will average 1.7 percent this year and 1.9 percent in 2015 - shy of the central bank's 2 percent target, according to the poll.
"We think the slow wage growth and lack of inflation pressure would still favour a rate rise early next year rather than late this year. But it will be a close-run thing," said Simon Wells, chief UK economist at HSBC.
(Polling by Kailash Bathija and Rahul Karunakar; Editing by Jeremy Gaunt)