The Bank of England is still expected to raise interest rates from a record low 0.5 percent early next year, but economists' conviction is wavering as domestic inflation and global growth remain muted, a Reuters poll found. Even a first-quarter hike would put the Bank several months behind the Federal Reserve, which is predicted to raise US rates as early as September and follow up with another increase before 2015 is over.
But any tightening moves would put them both at odds with dozens of other central banks around the world which have been loosening policy. The People's Bank of China surprised global markets on Tuesday by devaluing the yuan, suggesting growth is slowing in the world's second biggest economy, which had been considered the biggest driver of global expansion.
Britain's economy is still expected to grow 0.5 to 0.6 percent per quarter from now until the end of next year. That is little changed from a July poll and outstrips the outlook for the euro zone, its main trading partner. Inflation, which was non-existent in June, is expected to pick up towards the Bank's 2 percent target but won't reach it until 2017 at the earliest, the poll showed.
The Monetary Policy Committee is likely to shrug that off, though. According to medians in the poll of 50 economists, taken this week, the first 25-basis-point increase in the bank rate will come in the first quarter of 2016 and be followed by similar moves in the third and fourth quarters. However, the poll gave only a 53 percent chance of a move before April, down from 60 percent in a poll taken last month. That puts them more in line with financial markets, which have not fully priced in an increase until the second quarter.
"The MPC will probably aim at 'normalising' interest rates, starting early in 2016, but if global downside risks materialise, the decision to withdraw accommodation will be further delayed," said Stephen Lewis at ADM Investor Services. The bank rate has not been changed for over six years and the MPC has been in no rush to start tightening. Minutes from the Bank's August meeting showed only one of the nine members voted for an immediate increase. The poll forecast even at the end of the year only three would be calling for a hike.
This month, the Bank released for the first time minutes of its policy-setting meeting, its rate decision and its Quarterly Inflation Report simultaneously, in an effort to increase transparency. Seventeen of 22 economists in the poll said they preferred it this way, despite having a lot more data to digest rapidly. "Previously, the MPC announcements were damp squibs," said an economist at a major bank about the change. "More transparency - less smoke and mirrors," said another.
Comments
Comments are closed.