BoE to hike in Q1 as wage growth surpasses its expectations: Reuters poll

[LONDON] The Bank of England will hike its benchmark interest rate from a record low of 0.5 per cent early next year, according to a Reuters poll of economists who also said wages will rise faster in 2015 than the central bank thinks.

Average earnings was one of the key planks of Governor Mark Carney's 2013 forward guidance as to when Bank Rate would increase. The Reuters poll suggested wage growth will pick up faster this year than the 2.5 per cent the Bank predicted in May.

Twenty-four economists said pay growth was likely to beat that forecast, which the BoE downgraded in May from 3.5 per cent, while six said very likely. Only five said wage growth was unlikely to meet the BoE forecast.

"We have seen a decent surge in wage inflation of late and we are likely to breach the 3 per cent barrier quite soon. Under these circumstances, it will take some very weak numbers to get us back to 2.5 per cent by Q4," said Peter Dixon at Commerzbank.

As in recent polls, medians in the latest survey of nearly 60 economists taken this week, said Bank Rate would rise to 0.75 per cent in the first quarter, to 1.0 per cent in the third and then end 2016 at 1.25 per cent.

A year later it would only sit at 1.75 per cent, lower than the 2.00 per cent forecast from last month.

Markets are not fully pricing in a rate hike until the second quarter and the poll gave just a 55 per cent chance of an increase before April, unchanged from June. The vast majority of respondents said their conviction on timing was unchanged.

Andy Haldane, the Bank's chief economist, said on Monday recent strong wage data had not changed his view about the dangers of tightening policy too soon, adding that a drag on growth from sterling strength could outweigh the gains from higher wages.

None of the 59 economists polled expect any move when the Monetary Policy Committee meets on July 9.

REUTERS