LONDON: The Bank of England will hold off raising interest rates at least until July – later than economists forecast as recently as last week, according to a Reuters poll.
Respondents to the poll also said uncertainty over Britain’s membership of the European Union – on which the country will vote by the end of next year – was the biggest threat to the economy.
In a Reuters poll published on Jan. 4, economists’ median forecast was that the first increase in UK Bank Rate for nearly nine years would be next quarter. However, Thursday’s survey said the initial 25 basis point rise from a record low 0.5 percent would now come after June.
Recent downbeat economic data, alongside virtually no inflation, has persuaded many forecasters that the Bank’s Monetary Policy Committee would not act soon.
Sterling reached a 5-1/2-year low against the dollar on Wednesday, extending a brutal sell-off in which the currency has shed almost 6 percent in only a month.
Malcolm Barr at JP Morgan cited weak industrial production data on Tuesday, on top of slack wage growth and diving crude prices, as reasons for changing his forecast.
“Recent disappointments in the pay data and the drop in oil prices had already put our call for the MPC to raise rates in May at risk. The weakness in this IP report is the straw that breaks the camel’s back,” said Barr.
Barr, like several others, has moved his call to November. That would put the Bank nearly a year behind the U.S. Federal Reserve, which tightened policy in December and is expected to make three more rate increases this year.
However, headwinds from China and the global commodity markets may once again upend the Fed’s plans, less than a month into its first tightening in a decade, U.S. officials have said.
This latest poll is the sixth time the consensus for the first British rate rise has shifted since economists first predicted one in a poll two years ago. At the time they penciled in an increase in the second quarter of 2015.
With inflation nowhere near the Bank’s 2 percent target – and according to the poll won’t get there until 2017 – none of the 54 economists polled expects any action when the MPC announces its latest policy decision at 1200 GMT. reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/Economic-Monitor?g=7J
Britain has enjoyed relatively healthy economic growth compared with the neighboring euro zone, and gross domestic product is expected to increase 0.6 percent per quarter until early next year.
An overwhelming majority of economists said uncertainty over the outcome of the referendum on whether Britain remains in the EU was the biggest threat to that growth.
Prime Minister David Cameron has promised a vote on whether Britain should stay or exit under a “Brexit” scenario, and the latest opinion polls have shown voters are almost evenly split.
“The uncertainty surrounding the Brexit referendum, coming either later this year or next year, is highly likely to have a negative impact on growth,” said Oliver Jones at Fathom.
“Investment will almost certainly be reduced until a decision is made, and sterling assets are likely to suffer if a UK exit looks likely.”
Michael Page (MPI.L), one of the world’s leading recruitment firms, warned on Tuesday a British exit would lead to uncertainty that could damage growth.
“I am concerned about the disruption, because it causes uncertainty and uncertainty means that people are unprepared to make decisions,” Chief Executive Steve Ingham told Reuters.