Business World

Sunday 19 November 2017

First Bank of England rate hike to 0.75pc still expected in first quarter

A recent poll found a 70pc chance of a hike by the end of June. Photo: Bloomberg
A recent poll found a 70pc chance of a hike by the end of June. Photo: Bloomberg

Jonathan Cable

British interest rates will rise early next year as the economy chugs along and inflation creeps back towards the Bank of England's target, according to a poll that found economists' forecasts little changed.

The bank rate has sat at a record low of 0.5pc for over six years and the median in the poll of around 40 economists, taken in the past week, again said an initial hike of 25 basis points would not come until the first quarter of next year.

But as a whole the group's conviction on that timing is wavering, with a 55pc likelihood of a hike before April, down from 60pc in a May poll. The latest poll found a 70pc chance of a hike by the end of June.

"Headline inflation will be less of an obstruction by then. The best probability is February but I wouldn't rule it out being a bit earlier and equally it could be a bit later if the growth data disappoint," said Alan Clarke at Scotiabank.

That median expectation is earlier than markets are thinking. They have not fully priced in a hike until the second quarter of 2016 and the BoE last month cautiously backed those expectations for a later move.

What markets and economists do agree on is that when the BoE does start tightening policy it will do so only gradually. Bank Rate will be just 1.25pc at the end of next year and a still historically low 2pc by end-2017.

The BoE was once widely expected to be the first major central bank to begin tightening policy but the US Federal Reserve is currently on track for a September rate hike as the world's largest economy picks up.

Still, the time for Bank Rate to start rising is getting closer and data over the next few months will help determine exactly when that will be, a senior BoE official said on Friday.

Irish Independent

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