LONDON: The Bank of England will hike interest rates in the second quarter of next year but the timing may rest on whether the US Federal Reserve tightens policy in the world's largest economy next month, a Reuters poll found.
Bank Rate has sat at a record low 0.5 percent since March 2009 and the median from the poll of over 50 economists, taken this week, said a first 25 basis point rise will not come until at least April, unchanged from a poll published on Nov. 10.
But half of the 36 economists who answered an extra question said if the Fed does not raise borrowing costs as expected in December, they will probably move their BoE forecasts further into the future.
"If the Fed decide not to hike in December we would expect that would be the result of a weaker global outlook.
When the BoE come to make their decision they would cite the same risks and exercise the same caution," said Kallum Pickering at Berenberg Bank.
Of the five economists who still expect a move in the first quarter, three said their conviction over the timing had decreased over the past month. None of the 52 economists polled expect any move at the Bank's policy meeting on Dec. 10.
Economists once predicted it would be the first central bank to raise interest rates from crisis-era lows but have shifted their forecasts as the global economic outlook has darkened.
Inflation remains non-existent in Britain, where the Bank targets a rate of 2 percent.
Britain's recovery lost momentum last quarter, with GDP growing 0.5 percent, data are expected to show on Friday.
British finance minister George Osborne is likely renew his austerity drive later on Wednesday, taking a gamble that voters can accept four more years of deep spending cuts to fix the country's public finances, despite the dimming economic outlook.
Economists gave a median 23 percent chance of a hike by end-March, a 55 percent likelihood rates will move in the second quarter and a more certain 80 percent chance Bank Rate has gone up by the end of next year.
Nearly all the economists polled said financial markets, which do not expect any change in interest rates until the tail-end of 2016, were underpricing a first rate move.
Reuters polls this year have consistently found economists predicting a hike by the BoE in the first half of 2016.
Bank Governor Mark Carney told lawmakers on Tuesday British interest rates were likely to stay low for "some time" while his chief economist, Andy Haldane, said the risks to the economy and inflation were "skewed materially to the downside."
Prices actually fell 0.1 percent on the year in October for a second month but as 2014's oil price plunge drops out of the annual comparison in the next few months, inflation should pick up.
But inflation won't reach the Bank's target until 2017, according to a Reuters poll earlier this month, and therefore any rate rises will be gradual.
The initial move will be followed by a similar increase in the final months of next year. Even at the end of 2017 it will still only sit at 1.75 percent and by end-2018 it will be just 2.25 percent.
"We have been conditioned to believe that the BoE will raise rates at a modest pace once the tightening cycle begins," said Peter Dixon at Commerzbank.
"With inflation projected to remain close to target in the medium-term, this should be one of the factors which facilitates a slow tightening."
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