May 28, 2015 / 3:52 PM / 3 years ago

First British rate rise to come in first-quarter as economists stick to their guns: poll

LONDON (Reuters) - The Bank of England will start to lift interest rates early next year, according to the latest Reuters poll, even though the BoE has cautiously backed market expectations for a later move.

Earlier this month the central bank cut its British growth forecasts and guardedly supported bets in financial markets that it would only start to raise interest rates in around a year’s time.

The median forecast in Reuters’ poll of nearly 60 economists, taken this week, however, still suggested the Bank would make an initial 25 basis point hike to 0.75 percent in the first quarter of next year.

Economists as a whole did, though, reduce the likelihood of a move before April to 55 percent from the 60 percent given around a week ago. Over a third were less certain about their predictions, saying a hike could be even later than their forecasts. [ECILT/GB]

The initial increase would be followed by similar moves in the third and fourth quarters, taking the BoE’s benchmark rate to 1.25 percent at the end of next year. It has sat at a record low 0.5 percent since early 2009.

“Slow growth increases the risk that the BoE will be in no rush to hike rates and that once rates do start to move higher the pace of policy moves is likely to be slower than in previous cycles,” said Jane Foley, senior strategist at Rabobank.

Britain was the fastest-growing major advanced economy in 2014 as it made up ground lost during the financial crisis but the recovery has slowed since the start of 2015 and official data on Thursday pegged first quarter GDP growth at 0.3 percent.

Meanwhile, inflation turned marginally negative at minus 0.1 percent in the 12 months to April, the first occurrence of deflation since 1960, although the BoE and economists expect it to pick up soon.

A Reuters poll last week forecast inflation won’t reach the Bank’s 2 percent target until October 2016 at the earliest.

With inflation so weak, BoE Governor Mark Carney has repeatedly stressed any rate rises would be gradual and medians from the poll suggested the Bank Rate would still only be at a historically low 2.00 percent by the end of 2017.

The Bank’s chief economist, Andy Haldane, said on Friday the central bank would raise interest rates in the future but they would probably not return to levels as high as before the financial crisis.

None of the 57 economists polled expected any move when the bank meets on June 4.

Polling by Krishan Eluri and Sarmista Sen; Editing by Susan Fenton

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