Bank rate hike seen in fourth quarter - Reuters poll

Published 17th Feb 2011

The Bank of England will probably not hike interest rates until the fourth quarter of this year but the proportion of analysts expecting an earlier move to curb soaring inflation is rising, a Reuters poll showed on Wednesday.

Taken on Wednesday after the central bank cut its growth forecasts and said the outlook for inflation was highly uncertain, the poll found economists expect the first rate rise in the final quarter, the same as in a poll taken a week ago.

"My take at this stage is that the Inflation Report projections were more hawkish than last time but it is not screaming out rate hikes by May," said Alan Clarke at BNP Paribas.

The central bank's new economic forecasts pave the way for interest rates to rise but Bank Governor Mervyn King warned markets not to jump to conclusions about the timing or speed of any moves.

"Some people are running ahead of themselves and saying that we are pre-announcing or laying the ground for a rate rise," King told a news conference. "That decision has not been taken and won't be taken until we get to the next meeting or the following meeting, or it may be many quarters."

But 10 of 50 of economists polled now see a hike in the second quarter compared to 8 of 71 in last week's poll, and 22 of 50 see a third quarter hike compared to 24 of 70.

Markets are now fully pricing in the chance of a quarter percentage point rate hike by June, with another by October.

A divergence of views also exists within the Monetary Policy Committee itself, with minutes showing two of the nine members voted to raise rates last month. The minutes from the February meeting are due to be published next week.

"The February minutes will reveal more but, for now, the suspicion is that the Committee is split down the middle, with the governor struggling to keep the hawks at bay," said Simon Ward at Henderson Global Investors.

Medians show the base rate at 0.75 percent by the end of the year then rising by at least 25 basis points per quarter over 2012 to end next year at 2.0 percent, virtually unchanged from last week's poll.

INFLATION IRKS

Economists gave a median 35 percent chance of a rate hike by the end of June, up from the 30 percent in a poll taken ahead of February's MPC meeting.

"The February Inflation Report contained two important messages. The first is that the MPC is leaning towards a rate hike over the next few months," said Simon Hayes at Barclays, who now sees the first rise coming in May.

"The second is that the envisaged policy tightening is small and gradual and still potentially subject to delay."

The Bank has been reluctant to tighten policy as a sustained economic recovery is far from assured, with economists in a Reuters poll predicting growth of between 0.4 and 0.5 percent in the coming three quarters.

Source: ' Reuters '

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