November 11, 2014 / 2:27 PM / 5 years ago

Bank of England to cut forecasts, hold fire on rates until second-quarter 2015 - Reuters Poll

LONDON (Reuters) - The Bank of England won’t raise interest rates from a record low until the second quarter of next year, later than previously thought, and will cut its growth and inflation outlook on Wednesday, a Reuters poll forecast.

A man walks past the columns of the Bank of England in the city of London, October 17, 2014. REUTERS/Andrew Winning

Britain’s central bank is due to publish its quarterly Inflation Report on Wednesday and all but one of the economists polled this week said it would lower its inflation forecasts. Around two-thirds said it would also cut growth expectations.

That weaker outlook, alongside risks of a return to recession in the neighbouring euro zone, will allow Bank Rate to stay at 0.5 percent until at least April, the poll said.

“With inflation probably heading down to 1 percent over the next couple of months and wage growth very weak the Bank faces no pressure at all to raise rates just now,” said Rob Wood, chief UK economist at Berenberg.

Inflation slowed to a five-year low of just 1.2 percent in September and the latest Reuters poll suggested it still won’t be at the Bank’s 2 percent target at the start of 2016.

Economic growth was a relatively healthy 0.9 percent in the second quarter but slowed to 0.7 percent between July and September. The poll pegged it at a more modest 0.6 percent per quarter through to early 2016.

The latest Reuters poll had 29 of 49 economists saying it would be April at least before interest rates move. In an Oct.

29 poll a very thin majority — 28 of 54 — stuck to their calls for the initial hike to come in the first quarter.

It is an even sharper turnaround from an Oct. 1 poll when 54 of 60 economists had expected the Bank to act before April.

Bank Governor Mark Carney has repeatedly emphasised that any increases will be gradual.

Median forecasts suggest Bank Rate, which has been at 0.5 percent since March 2009, will stand at just 1.0 percent at the end of next year. It will finish 2016 at 1.75 percent and 2017 at 2.5 percent, still very low by historical standards.

FACE VALUE

Possibly clouding the debate over timing of the first move, Britain will hold a parliamentary election in May and any monetary policy changes before then could be deemed political.

However, a slim majority, 11 of 21 economists, said the vote would not weigh on the Bank’s decision making.

Two members of the decision-making Monetary Policy Committee voted in October to hike rates, and only one of 18 economists in the poll said they would change their minds.

Martin Weale and Ian McCafferty, the two voting for an increase, have highlighted the swift pace at which Britain’s unemployment rate is falling and an anticipation of a pick-up in inflation.

Official figures due on Wednesday are expected to show unemployment has fallen to 5.9 percent in the three months to September. ECONGB

Wage increases, one of the pillars the Bank has set as to when to tighten policy, will probably outpace inflation in the

current quarter, the poll said.

In August the Bank said Britain’s economy would grow 3.5 percent this year and 3.0 percent in 2015, far more bullish than the respective 3.0 and 2.5 percent forecasts in the Reuters poll.

Polling by Sarbani Haldar and Swati Chaturvedi

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