Bank of England to leave Bank Rate at 0.5 pct until early 2017

City workers walk past the Bank of England in the City of London, Britain, March 29, 2016. REUTERS/Toby Melville

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.

Bank Rate has sat at 0.5 percent for over seven years and the BoE – which was once pegged as going to be 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 percent chance the Bank will have raised rates by the end of this year, down from the 45 percent 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 percent per quarter from here through to the middle of next year, and markets are jittery that any more evidence of a slowdown in China would send shockwaves across the world. [ECILT/GB]

As well as facing disappointing growth, the central bank is having to set policy with inflation nowhere near its 2.0 percent target. Prices rose just 0.3 percent 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, borrowing costs will still only be 1.75 percent, unchanged from the previous poll.

None of the 50 economists polled expect any move when the Bank’s Monetary Policy Committee makes its latest policy announcement on April 14.

[Source:- Reuters]