LONDON The Bank of England will be the first major central bank to lift interest rates when it makes a move early next year, jumping the gun on the U.S. Federal Reserve by a few months, a Reuters poll shows.
The BoE will raise its Bank Rate by 25 basis points in the first quarter of 2015 from a record low of 0.5 percent, while the Fed will wait until the second quarter before lifting the federal funds rate from near zero, the poll of around 85 economists taken this week found.
While both economies are on a firmer footing the central banks will only move in baby steps, mindful that any increase in borrowing costs could threaten the economic rebound.
"We are getting a similar rhetoric from policymakers in both economies. They have made clear they don't want to act in a hurry," said Sarah Hewin at Standard Chartered.
"But the pace of activity is probably stronger in the UK than in the U.S. and we are seeing a faster decline in the unemployment rate in the UK."
Fed Chair Janet Yellen said at the weekend the bank should move cautiously in deciding when to raise interest rates given the labour market remains bruised, echoing repeated statements from BoE Governor Mark Carney who has stressed any increases would be gradual.
A separate Reuters poll earlier this month said the fed funds rate would still only stand at 0.25 percent in June and 0.5 percent by September 2015. [ECILT/US]
Similarly, median forecasts in Thursday's poll showed Britain's Bank Rate would only creep up to stand at 0.75 percent in March, 1.00 percent in June and 1.25 percent in September.
It will then rise to 1.50 percent at the start of 2016 and end that year at 2.00 percent. By the end of 2017 it will still only be 2.75 percent - very low by historical standards.
None of the 42 economists who forecast UK rates expect any move when the Bank's Monetary Policy Committee meets on Sept. 4 and just five of 42 expect any move this year. In a poll ahead of August's policy meeting 18 of 55 economists had a hike pencilled in before 2014 ends.
"The case for a Q4 hike is much less clearcut than we previously judged, especially given that average earnings and CPI data are unlikely to provide a trigger for action," said Michael Saunders at Citi, who recently changed his forecast from the fourth quarter to early next year.
The BoE has said it does not intend to raise interest rates until there is a clear prospect of stronger wage growth and Deputy Governor Ben Broadbent said on Saturday that was unlikely to pick up anytime soon.
However, two members of the MPC voted to increase the Bank Rate this month, saying recent declines in unemployment suggest wage growth could accelerate, and that the economy was running at close to capacity.
The poll saw a 30 percent chance that borrowing costs would increase this year, down from 40 percent in a July 30 poll, and a 63 percent chance of a rise in the first quarter. There is a pretty certain 80 percent likelihood it has gone up before July.
Just as markets are focusing on when the BoE and the Fed will tighten policy, they are also debating if and when the European Central Bank will do more to stimulate the euro zone economy.
A sister poll showed the ECB will probably launch a quantitative easing programme by March to thwart risks of deflation and jumpstart the economy, beginning by buying asset-backed securities. [ECB/INT]
(Polling by Kailash Bathija, Swati Chaturvedi and Ishaan Gera; Editing by Susan Fenton)