(Reuters) - Forecasters are not convinced the Bank of England’s current guidance on monetary policy is accurate, with only half of those polled by Reuters expecting the central bank to wait until 2016 before raising interest rates.
BoE Governor Mark Carney has been under pressure over his forward guidance policy, which stipulates that the jobless rate, currently at 7.7 percent, must fall to 7 percent before considering an interest rate rise from the record low 0.5 percent.
The Bank of England does not expect the unemployment rate will fall below its 7 percent threshold before the third quarter of 2016.
The poll was taken before surveys on Thursday showed Britain’s services sector posted solid growth in September, rounding off its strongest quarter in more than 16 years, suggesting the recovery has strengthened and broadened.
“A combination of firm growth and falling joblessness will result in the Monetary Policy Committee responding by raising rates earlier than implied by its current guidance,” said Investec chief economist Philip Shaw.
A slim majority polled said that the unemployment rate will fall to 7 percent at some point by end-2015 - no doubt based on the speed at which it has fallen recently.
The poll also found that only 13 of 53 economists thought any of the BoE’s three get-out clauses for its guidance would be invoked before then.
Those knockouts allow the bank to change policy if public inflation expectations rise significantly; if low rates threaten financial stability; or if its forecasts show inflation at 2.5 percent higher in 18-24 months.
“Getting down to seven percent by the end of 2014 only requires that we maintain the same rate of job creation that we had over the past few years of the recovery,” said Philip Rush, UK economist at Nomura adding that the rate is similar to what was seen between the 1990s and late 2000s.
Foreign exchange forecasters, many from the same banks and research institutions as those forecasting UK monetary policy, are also looking for a significant fall in sterling - by 4.5 percent against the dollar in a year.
That’s as much a reflection of monetary policy elsewhere - namely the United States - as a big influence on sterling.
Investors snapped up the pound in September after the U.S. Federal Reserve unexpectedly decided to maintain its monthly bond-buying stimulus at $85 billion per month, pushing the dollar to an eight-month low against a basket of currencies.
And the latest data from the Commodity Futures and Trading Commission showed speculators switched to betting on further sterling strength, while slashing their bullish dollar calls to a seven-month low.
But the pound’s recent ascent looks temporary, even if a flurry of positive UK economic data shows an economic recovery is starting to take hold.
Economists polled by Reuters still expect the Fed to start trimming the pace of its stimulus in December. Once that starts, sterling - like other major currencies around the world - looks set to weaken.
Forecasters now predict the steepest decline for the pound over 12 months in more than three years of Reuters polls - although that’s down partly to sterling’s bounce that pushed it to a nine-month high of $1.6260 earlier this week.
The pound is expected to trade around $1.61 in a month from now, $1.58 in three, and $1.54 in a year compared with $1.53, $1.51 and $1.50 in the previous poll. It was trading around $1.62 earlier on Thursday.
And Britain’s government bond markets are just as swayed by the Fed’s policy plans as its currency.
A firm majority of economists agreed that the Bank would be unable to cap British borrowing costs from rising once the Fed does act, with 40 saying it would not be able to keep yields down and just 8 voting it would.
“Central banks know that they have only limited control over the longer end of the curve,” said Peter Dixon, UK economist at Commerzbank.
“Jawboning is the most effective strategy they have but if a market rout threatens, the BoE can always restart its QE programme - though I doubt that it will be willing to do so.”