Bank to keep rates steady until Q3 as inflation soars-poll

By Jonathan Cable

LONDON (Reuters) - The Bank of England will hold off cutting rates from 5.0 percent until the third quarter as it battles soaring inflation, a Reuters poll of economists taken after the central bank published its quarterly review showed.

The poll of 53 economists found 27 of them predicting the bank would next cut rates between July and September, with 17 plumping for August.

Only 9 predicted a June rate cut, compared with 45 of 60 forecasting a cut by June in a poll published just two weeks ago.

The median probability of a cut next month has been slashed to 20 percent from the 70 percent predicted in the last poll, while the forecast for a cut by the end of the year was 80 percent, compared with 95 percent in the earlier poll.

Expectations for further cuts diminished when the Bank of England's quarterly inflation and growth forecasts, published on Wednesday, showed inflation nearing 4 percent this year, well above the 2 percent target.

"The message that comes out of the forecast is that rates are on hold for the foreseeable future," said Geoffrey Dicks at RBS.

Bank of England Governor Mervyn King said policymakers face their toughest challenge since 1997 -- when the Bank became independent in setting rate policy -- as they try to balance rising prices against weaker economic growth.

The central bank report showed GDP growth slowing to around 1 percent at the end of 2008 and said there was an outside chance the economy could contract, with risks to the downside as the global credit crunch hampers any imminent recovery.