By Jonathan Cable
LONDON (Reuters) - The Bank of England will wait until August before raising interest rates, according to a Reuters poll in which nearly all economists pushed back previous expectations of a hike on Thursday.
That dramatic turnaround from a poll taken just a few weeks ago was triggered by dovish comments from BoE Governor Mark Carney, together with a slew of downbeat data suggesting Britain's economy is barely growing.
All but three of the 62 economists polled from May 3-8 expect no move from 0.5 percent this month - a complete reversal from an April 18 poll when 69 of 76 economists had a 25 basis point increase pencilled in for May 10.
Just under a third of economists polled now expect no change in August either.
Financial markets have made a similar about-face.
At the start of April they were pricing in a 90 percent chance of a hike, but that has plummeted to around 10 percent. Sterling has plunged from above $1.43 in mid-April to around $1.35 now.
"Following dovish comments from Governor Mark Carney on April 19, softening activity data, a downside surprise on inflation and GDP growth of just 0.1 percent quarter-on-quarter in Q1, the probability has fallen," Simon Wells at HSBC told clients when changing his forecast.
Bank Rate will instead rise to 0.75 percent in August, medians in the poll said, and then to 1.0 percent in the second quarter of 2019, just after Britain is scheduled to leave the European Union.
"We expect the data to improve in the coming months, allowing the Monetary Policy Committee to hike Bank Rate in August. But we acknowledge that the risks now look skewed to the downside," noted Andrew Wishart at Capital Economics.
Some of the economists polled have no rate hike this year or in their forecast horizon.
The BoE also publishes its quarterly Inflation Report forecasts on Thursday. Based on experience, economists and traders tend to view the BoE as more likely to change policy during months when it has forecasts to explain its decisions.
But Britain's economy has fallen from top to bottom of the list of G7 countries in terms of growth rate, and uncertainties over what sort of deal Britain strikes with the EU before it leaves in March next year has left consumers, investors and economists wary.
Signals that Britain's economy is slowing suggest "unreliable boyfriend" Carney - whose recent comments up-ended expectations the BoE would raise rates this month - may just be in touch with his data-sensitive side.
The bank governor's guidance on the path for interest rates has repeatedly been knocked off course by surprises in the economy, hence the accusation of unreliability from a lawmaker.
"It all boils down to how the Committee sees the recent weakness in British figures like GDP and inflation," said Andreas Wallstrom at Nordea, who added he was not super confident in his call for an increase this week.
"The signals from the Bank if you go back to before those outcomes was quite clear that they had the intention to hike. It is not set in stone."
Inflation, while still considerably above target, has fallen faster than the Bank expected and wage growth - which has long underpinned the BoE's view that rates will need rise gradually over the next few years - dropped to less than 1 percent in the three months to February.
"The MPC's inflation forecast, then, likely will signal that it believes it doesn't need to rush, but that it still expects to embark on a gradual tightening over the next three years," said Samuel Tombs at Pantheon Macroeconomics.
(Polling by Sujith Pai and Vivek Mishra; editing by John Stonestreet)
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Updated Date: May 09, 2018 07:05 AM