Doves taking flight on when BoE to hike

November 17, 2014

A turtledove flies on the beach front in Nice

Doubts over just how soon the Bank of England can raise interest rates have been growing in recent weeks as Britain’s recovery looks in danger, inflation remains stubbornly low and concerns about the euro zone intensify.

Those fears persuaded HSBC to make one of the biggest forecast changes in recent history on Monday, pushing back its first call by a whole year.

While other economists have also been revising forecasts, they have only been moving back a quarter or two and the median expectation in the latest Reuters poll still pegged the first rise in the second quarter of next year.

But HSBC now doesn’t expect the initial increase to Bank Rate from the record low of 0.5 percent to come until early 2016, citing November’s dovish Inflation Report and evidence of a slowdown in UK growth for the revision.

“We are making a big revision to our UK policy rate forecast,” HSBC’s Chief UK Economist, Simon Wells, said.

“In an environment of fragile growth and low inflation, tightening is just too frightening.”

Official figures due on Tuesday are expected to show prices rose just 1.3 percent on the year in October and British Prime Minister David Cameron warned on Monday the global economy was at risk of slipping back into crisis.

Still, not everyone is convinced Britain’s central bank will hold back. Barclays and Credit Suisse, among others, say interest rates will already be at 1.5 percent by the end of next year.

With Britain’s housing market cooling, inflation nowhere near target and the economy at risk of stalling there is little evidence to support a move anytime soon.

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