LDN - Business

Bank of England to keep rates on hold until 2019 at least: Reuters Poll

[January 23, 2017] By Jonathan Cable

LONDON (Reuters) - The Bank of England will leave its record-low interest rates and other stimulus measures unchanged at least until 2019, even though it is likely to revise up its 2017 growth predictions again next week, a Reuters poll found on Monday.

All but one of the 67 economists polled by Reuters in the last few days said the Bank would keep its policy unchanged when it announces the outcome of the latest meeting of its rate-setters on Feb. 2.

After Britain voted last June to leave the European Union, the Bank cut borrowing costs to a record low of 0.25 percent and restarted its quantitative easing program as it responded to initial signs that the economy was slowing sharply.

But the economy has so far fared much better than feared, and two-thirds of the respondents in the Reuters poll said the Bank would raise its growth forecasts again in its latest Quarterly Inflation Report. The others said they would be left unaltered.

In November, the Bank made its biggest ever forecast upgrade when it raised its expectation for British economic growth in 2017 to 1.4 percent from the previous 0.8 percent made in August, although it lowered its forecasts for 2018 and 2019 on higher inflation and weaker business investment.

"In normal times, the current data might point to a rate rise in the UK but times are not normal, and the bar for a hike is high," said Liz Martins at HSBC.

"With Brexit-related uncertainty, slower growth and weaker consumption in prospect, we think rates stay on hold."

The poll gave only a median 20 percent chance of borrowing costs increasing this year and just a 15 percent likelihood they'll fall, the poll found. The highest chance of a hike given by anyone was 70 percent and the highest of a cut was 60 percent.

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Pedestrians walk past the Bank of England in the City of London, Britain, May 15, 2014. REUTERS/Luke MacGregor/File Photo

Few expected any change to the Bank's target of holding 435 billion pounds of British government bonds and 10 billion pounds of corporate bonds before the end of December 2018, the forecast horizon. Three thought the size of the bond-buying programs would be raised and one said they would be cut.

Fifteen of 31 respondents said the Bank would raise its forecast for inflation over the next two years. It has already begun to climb following the pound's slump and rising oil prices. Twelve said the inflation forecast would be unchanged and four said it would be lowered.

"Inflation forecast likely to be revised up as sterling depreciation effects come through more quickly than previously expected," said Stephen Lewis at ADM Investor Services.

June's shock EU referendum result wiped as much as 20 percent off the pound's value <GBP=> against the U.S. dollar.

A Reuters poll last week predicted Britain's economy would grow 1.2 percent this year and 1.3 percent in 2018. It also said inflation would be 2.5 percent this year and next.

(Polling by Krishna Eluri and Vartika Sahu)

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