More economists see BoE rates on hold until early 2016

[LONDON] The Bank of England will sit tight on interest rates until next year as it waits for Britain's recovery to grow deeper roots and inflation to pick up, according to an increasing number of economists polled by Reuters.

None of the 75 economists surveyed by Reuters over the past week expect any move on Bank Rate from its record low of 0.5 per cent when the Monetary Policy Committee meets on April 9.

The median forecast is for the first hike to come in early 2016 - and even then of just 25 basis points. Thirty-five of 63 economists don't expect any move before January whereas in a poll taken ahead of the March meeting it was 28 of 61.

"Low near-term inflation and the strong pound have prompted increased cautiousness from the MPC. The first rate hike is likely to be postponed until the downside risks on inflation expectations wane completely," Slavena Nazarova at CA-CIB wrote in a note to investors.

"We have delayed our call for the first rate hike to Q116."

It was only in February that a majority of economists said rates would move up before the end of 2015, and last year the BoE was widely expected to be the first major central bank to tighten policy.

The United States Federal Reserve is now expected to be first out of the blocks and is seen tightening policy in September - and even that call has been pushed back from June.

The economy expanded at a faster pace than previously thought at the end of last year and growth is expected to remain strong through 2016.

However, a spectacular fall in oil prices has sent inflation across the globe tumbling, pushing over two dozen central banks to loosen policy this year.

Britain saw no inflation in February for the first time on record but prices are expected to increase in the coming quarters.

"CPI inflation should be back above target by February 2016 as lower energy prices fall out of the base," said Stephen Lewis at ADM Investor Services. The BoE targets inflation at 2 per cent.

Still, as repeatedly stressed by policymakers, any move in Bank Rate will likely be gradual. The poll said it would still only be 1.25 per cent at the end of next year and 2.0 per cent at the end of 2017.

Before the financial crisis began it was as high as 5.75 per cent.

BoE Governor Mark Carney said last week the Bank's next move would be up, underscoring a difference of view with his Chief Economist, Andy Haldane, who surprised investors last month when he said the recent sharp slowdown in inflation meant the Bank was as likely as not to cut rates.

All of the economists in the poll sided with Carney in saying the next move would be a hike.

"No signs yet that deflationary mindset is a threat, so no real risk yet of a rate cut," said Jane Foley at Rabobank.

REUTERS