Bank of England may hike rates this year

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BankofEngland1 Reuters.

London - The Bank of England will not raise interest rates until early next year but the likelihood it pulls the trigger before then is growing, a Reuters poll found on Thursday.

Median forecasts from the poll of over 60 economists, taken this week, suggest the Bank will deliver its first hike of 25 basis points from the current record low of 0.5 percent in the first three months of next year.

That is unchanged from a June 17 poll.

But the latest survey gave a 40 percent chance of a hike this year compared to just 30 percent in a poll taken in early May - the last time that question was asked.

And there is a 90 percent likelihood that rates will be higher by the end of next year.

While none of the economists expect a move at the BoE's July 10 meeting, 21 of the 63 polled see a hike this year compared to just four of 52 in a poll taken ahead of June's policy meeting.

“It is a tight call as to whether rates will rise in 2014 or early 2015. Either way, we subscribe to the view that the tightening process will be a slow haul,” said Peter Dixon at Commerzbank.

BoE officials have recently given mixed signals on the timing of a potential interest rate rise.

While they say markets have underestimated the likelihood of a move in 2014, they also think more slack needs to be used up before that happens.

The first vote for a hike from at least one of the nine members of the Bank's Monetary Policy Committee will come in August according to two-thirds of economists in the poll.

One said it would be as early as this month.

In June's poll, only around half thought it would be August.

Sterling has rallied to around six-year highs in recent days as data continues to suggest a strong recovery.

A majority of strategists in a Reuters foreign exchange poll on Wednesday raised their cable forecasts from last month.

Bank Rate is expected to gradually move up to 2.25 percent by the end of 2016 and to 3.00 percent by end-2017.

That fits with BoE Governor Mark Carney repeatedly stressing the Bank intends to raise interest rates in a “limited and gradual” manner.

Carney said last week British interest rates were unlikely to return to levels seen as normal before the financial crisis because the economy was still vulnerable. Bank Rate stood at 5.75 percent in mid-2007.

“As the rate increase will ultimately be 'data driven' and as we do not expect a significant increase in real wages before 2016, we stick with our scenario of a long-lasting status quo,” said Nathalie Dezeure at Natixis, the only economists polled who does not expect a rise before 2016. - Reuters



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