‘UK rate rise will be seen in first quarter next year’

It will be early 2016 before the Bank of England raises interest rates from a record low, economists who largely brushed off hawkish talk last week from officials suggesting a rate rise might come earlier, have claimed.

The British economy’s strong momentum despite extremely low inflation now meant the decision on when to raise rates from 0.5% would come into sharper focus around the end of this year, said governor Mark Carney on Thursday.

Some interpreted that to mean that rates might rise by the end of the year as the remarks followed news of higher pay growth and a speech from outgoing monetary policy committee member David Miles, who said rates should rise soon.

But the latest Reuters poll of over 50 economists, said an initial 25 basis point hike wouldn’t come until the first quarter, followed by an identical hike in the third quarter and one more before end-2016.

“Although many will take Carney’s bold words as a clear hint that rates will rise this year, it is worth bearing in mind the similarities with last year’s Mansion House speech,” said Allan Monks, economist at JP Morgan.

Goldman Sachs economist Andrew Benito, who held his forecast that rates won’t rise until the second quarter of 2016, went a step further:

“This indicates that governor Carney’s individual vote will likely be more finely balanced at the turn of the year, assuming the economy evolves as he expects. Yet, it does little to commit to voting for a rate rise even then.” There is only a median 28% chance the Bank will have moved before year end, little changed from last month.

Reuters