Poll: UK to keep interest rate at record low to 2017

The Bank of England will leave British interest rates at a record low until next year as stuttering global growth and inflation nowhere near target ties the central bank’s hands, a Reuters poll found.

The rate has sat at 0.5% for more than seven years and the Bank of England — which was once pegged as the first major central bank to tighten policy — will not act until early 2017, the poll of 50 economists taken in the past few days found.

There was only a median 40% chance the central bank will have raised rates by the end of this year, down from the 45% in a March 8 poll.

“At this stage, a 2016 rate hike is wishful thinking given the headwinds that currently face the UK economy,” said Thomas Bloomfield at 4CAST.

Britain’s economy is expected to grow a relatively modest 0.5% per quarter from now to the middle of next year, and markets are jittery that more evidence of a slowdown in China would start global shockwaves.

As well as facing disappointing growth, the central bank is having to set policy with inflation nowhere near its 2% target.

Prices rose just 0.3% in February on a year ago.

Therefore any hikes will be gradual and the initial 25 basis point increase will be followed by matching moves in the second and fourth quarters of next year.

At the end of 2018, UK borrowing costs will still only be 1.75%, unchanged from the previous poll.

None of the 50 economists polled expect any move when the bank makes its latest policy announcement on April 14.