Bank of England hike pushed to August on Carney comments, data

LONDON: The Bank of England will wait until August before raising interest rates, according to a Reuters poll in which nearly all economists pushed back previous expectations of a hike on Thursday.

That dramatic turnaround from a poll taken just a few weeks ago was triggered by dovish comments from BoE Governor Mark Carney, together with a slew of downbeat data suggesting Britain’s economy is barely growing.

All but three of the 62 economists polled from May 3-8 expect no move from 0.5 per cent this month – a complete reversal from an April 18 poll when 69 of 76 economists had a 25 basis point increase pencilled in for May 10.

Just under a third of economists polled now expect no change in August either.

Financial markets have made a similar about-face.

At the start of April they were pricing in a 90 per cent chance of a hike, but that has plummeted to around 10 per cent.

Sterling has plunged from above US$1.43 in mid-April to around US$1.35 now.

“Following dovish comments from Governor Mark Carney on April 19, softening activity data, a downside surprise on inflation and GDP growth of just 0.1 per cent quarter-on-quarter in Q1, the probability has fallen,” Simon Wells at HSBC told clients when changing his forecast. Bank Rate will instead rise to 0.75 per cent in August, medians in the poll said, and then to 1.0 per cent in the second quarter of 2019, just after Britain is scheduled to leave the European Union.

“We expect the data to improve in the coming months, allowing the Monetary Policy Committee to hike Bank Rate in August.

But we acknowledge that the risks now look skewed to the downside,” noted Andrew Wishart at Capital Economics.