March 12, 2014 / 2:35 PM / 5 years ago

British economy set to be fastest growing among G7

LONDON (Reuters) - Britain’s economy will grow faster than any other G7 nation in coming quarters, but the Bank of England will not raise interest rates until next year to avoid choking off the recovery, a Reuters poll showed on Wednesday.

The Tata Steel plant is seen in Port Talbot, South Wales May 31, 2013. REUTERS/Rebecca Naden

The poll of over 50 economists, taken this week, suggested Britain’s gross domestic product (GDP) will grow 0.6 percent per quarter through to September 2015.

If those forecasts are met, Britain’s economy will be back to its pre-crisis size by the end of June and be the fastest growing amongst the group of seven major industrialised nations.

“The story on the UK remains very positive, with business surveys pointing to robust activity, confidence indicators bouncing strongly, credit growth strengthening and asset prices rising,” said James Knightley at ING.

Britain’s economy will expand 2.7 percent this year and 2.4 percent in 2015 and 2016, similar to forecasts made by the Organisation for Economic Cooperation and Development (OECD) on Tuesday.

The euro zone economy, Britain’s main trading partner, is expected to eke out just 1.1 percent growth this year and 1.4 percent next, with any deterioration in that highlighted as a risk to British growth.

Quarterly forecasts were unchanged from a February poll and despite the upbeat outlook the latest survey again said it would be next year before the BoE raised interest rates from record lows - and even then by only 25 basis points.

The poll, agreeing with financial markets, says the Bank of England raise its benchmark interest rate to 0.75 percent in the second quarter of 2015 and by another 25 basis points in the third quarter.

BoE Governor Mark Carney has repeatedly stressed there was no rush to raise rates and that any increases would be gradual. His deputy, Charlie Bean, said earlier on Wednesday that when the time comes to increase borrowing costs it would be to a level “materially lower than before crisis”.

Bank Rate was raised to 5.75 percent in July 2007, but fell steadily as the euro zone sovereign debt crisis and a financial meltdown in the United States sent the global economy into a tailspin.

In an effort to give markets guidance, the Bank tied the path of monetary policy to unemployment. But Carney was forced to abandon that in February - just six months in - after joblessness fell within a whisker of its 7 percent target three years earlier than when they first forecast it would.

Instead, he said the Bank would focus on 18 separate measures of data in order to gauge the right time to start raising rates, a move that split economists in a recent Reuters poll as to whether it has improved clarity about where interest rates are headed.

Still, while only four of 46 economists expect any increase this year, there is a median 80 percent chance that Bank Rate will have risen by the end of 2015 and an almost certain 95 percent chance before 2016 ends.

Polling by Sarmista Sen and Siddharth Iyer; Editing by Hugh Lawson

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