March 12, 2015 / 3:57 PM / 3 years ago

First BoE rate hike forecast pushed back to 2016 - Reuters poll

A pedestrians walks under an arch opposite the Bank of England in London March 5, 2015. REUTERS/Suzanne Plunkett

LONDON (Reuters) - The Bank of England probably won’t raise rates until early next year, according to economists polled by Reuters, who have once again pushed ahead the timing for the first rate increase.

The poll also showed that political uncertainty following May’s national election poses only a small risk to an otherwise decent growth outlook.

Economists polled by Reuters have been consistently pushing expectations further ahead for when Bank Rate will move up from its current record low, 0.5 percent.

The number of forecasters expecting no move has steadily increased over the last month. Thirty-one forecasters polled this week do not expect any move before the end of the year, up from 28 two weeks ago and 24 a month ago.

If the latest predictions are correct it would mean the BoE, once forecast to be the first major central bank to raise rates, will be well behind the United States Federal Reserve, which is expected to tighten policy by mid-year or shortly thereafter. [ECILT/US]

Sterling fell to its weakest level against the dollar in 20 months on Wednesday, reflecting that widening gap in expectations.

“The risk of further falls in inflation expectations will likely lead the BoE to postpone its first rate hike, possibly to the beginning of next year,” said Slavena Nazarova at CA-CIB.

Oil prices have collapsed since last summer, making only a small recovery in the past few weeks. That has helped to drive inflation down to a record low of 0.3 percent in January -- well below the Bank’s 2 percent target.

None of the economists expected inflation to reach the target in 2015. Medians from the poll suggest it will average 0.5 percent this year and still only 1.7 percent next, barely changed from February’s poll.

But three of the five top forecasters on British economic data last year do still expect that before the year is over, the Bank will move rates from where they have sat for six years.

“Once the election is out of the way, and particularly if the Fed moves in June, we would expect the BoE to follow not long after,” said Daniel Vernazza at UniCredit, last year’s most accurate forecaster.

“This will be supported by quite a strong pick-up in wage growth in the next few months and our expectation that the Monetary Policy Committee will look through the temporary impact on inflation from oil prices.”

According to the poll, average earnings will rise 2.6 percent this year, outstripping inflation but not by as much, as the central bank expects.

GROWTH STILL BETTER THAN EURO ZONE

Growth forecasts were unchanged from last month’s poll. The economy is expected to expand 2.6 percent this year and 2.4 percent next.

The outlook is for healthy 0.6-0.7 percent growth per quarter through to June 2016, far outstripping the neighbouring euro zone, Britain’s biggest trading partner, where the European Central Bank has only just started a trillion-euro quantitative easing programme. [ECILT/EU]

But there is a small risk to predictions for the UK economy if there is an indecisive outcome at the May 7 election, 19 of 30 economists said. Nine said it was a major risk, while just two said there was nothing to worry about.

The vote is likely to be one of the closest in a generation, although the latest YouGov survey gave British Prime Minister David Cameron’s Conservatives a 4 percentage-point lead over Labour, his largest in over three years.

“A messy election result has the potential to subdue the recovery in business investment, which already looks shakier than it did six months ago,” said Samuel Tombs at Capital Economics.

Polling by Khushboo Mittal and Swati Chaturvedi; Editing by Ross Finley and Larry King

Our Standards:The Thomson Reuters Trust Principles.
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