Expectations
for the first rate hike from the Bank of England have been pushed back further
into next year, according to a new survey of experts.
As the
Bank of England's monetary policy
committee prepares for its July meeting next week, a new poll from
Reuters shows that economists now expect rates to stay at the current record
low of 0.5% until the second quarter of 2011.
In the
aftermath of George Osborne's austerity Budget,
it seems economists now believe the Bank will be forced to give the economy a
monetary helping hand: last month the same poll saw the first hike coming in
the first quarter.
But the
new survey indicates that rates could go up a full half-point to 1.0% in the
second quarter of next year.
'The UK
economy is in need of as much support it can get as it works through the
painful, but required budget cuts,' said Stephen Pope from Cantor Fitzgerald,
explaining why he expects rates to stay on hold longer.
MPC members have been candid recently in comments on the Bank's rates
policy: Andrew Sentance said earlier this week that the Budget did not remove
the need to restrain inflation by raising rates when necessary.
Sentance
surprised markets last week when minutes from the MPC's June rate-setting
meeting showed he voted for a hike in the bank rate to 0.75% in order to rein back inflation.
Although
UK consumer price inflation fell more than expected in May to 3.4% from April's
17-month high of 3.7%, it is still well above the 2% target and has largely
surprised on the upside this year.
'Inflation
seems set to continue to exceed expectations but a majority on the MPC is
likely to favour leaving the Bank rate
unchanged until the effects of fiscal cuts on the economy are clearer,' said
Stephen Lewis of Monument Securities.
On
Wednesday, MPC member Adam Posen also sent out a warning on inflation, although
he added that this was not sufficient to warrant policy tightening with an
unclear growth outlook.
The
economists polled by Reuters were clearly in accord against raising rates too
soon. Analysts gave a 28% chance of a rate hike before the end of the year -
roughly the same as in June -- and an almost nil chance of any move at the
Bank's next meeting next Thursday.
Fears are
growing that - on top of the deflation
contained in Osborne's Budget - any export-led boost the UK might get from a
weaker pound will be killed off by a new wave weakness in the euro zone
economies.
