LONDON (Reuters) – The Bank of England, once widely expected to start weaning Britain off near-zero interest rates this month, now looks set to signal no rise in borrowing costs until the middle of next year.
The BoE will keep rates at 0.5 per cent – their level since the depths of the financial crisis in 2009 – when its monthly policy meeting ends at 1200 GMT on Thursday, according to every forecast in a Reuters poll of 54 economists.
More attention will be paid to economic projections the Bank is due to publish on Nov. 12, which will reflect gathering clouds over Britain’s fast-recovering economy since the BoE made its last quarterly forecasts in August.
A combination of weak inflation that could fall below 1 per cent soon, still-feeble wage growth and the risk of a return to recession in the eurozone, has already prompted some of the Bank’s top officials to say they are not ready to start returning to more normal monetary policy.
A cut in the Bank’s inflation and growth expectations next week would probably encourage financial markets to add to their bets that there will be no rate hike until mid-2015 – after Britain’s parliamentary election in May – or possibly later.
Alan Clarke, an economist at Scotiabank, predicted the BoE would cut its forecast for inflation in two years’ time to 1.7 per cent from 1.8 per cent, further below the bank’s 2 per cent target.
“If we are right about this projection, then the market will probably conclude that the first rate hike is not likely until late 2015,” he said in an e-mail to clients.
By contrast, Simon Wells at HSBC said that, while the bank might chop its short-term inflation forecast, it could nudge up its medium-term inflation projections to reflect how continued low interest rates are likely to keep growth humming.
“In this sense we do not expect a resoundingly dovish report,” he said in a research note.
Economists predict only a modest downgrade to the BoE’s August growth forecasts, which at 3.5 per cent for this year and 3.0 per cent for 2015 are more bullish than most analysts expect.
At a news conference also on Nov 12, Governor Mark Carney will probably strike a different tone from a speech he gave in June when he surprised investors by warning that rates could rise sooner than they were expecting.