By Jonathan Cable
LONDON (Reuters) - Falling inflation, stock markets and growth rates have virtually wiped out lingering expectations for a Bank of England interest rate hike this year though the consensus for a rise early in 2015 has not budged, a Reuters poll found on Thursday.
Only one of the 60 economists polled by Reuters during recent days of market turmoil expects Britain's central bank to raise rates from their record low of 0.5 percent before 2014 is over, compared to six of 45 in a September poll.
In August, 17 of 47 had a move by the Monetary Policy Committee pencilled in for this year. That was a few months after a speech by BoE Governor Mark Carney that markets took as a signal that he was inclined to raise rates by year-end.
Around then, financial markets were completely pricing in such a move. But now they aren't expecting the first rise until the second quarter of 2015, marking what is an unusually wide disconnect between consensus forecasts and market pricing.
"We now consider that a combination of low inflation, international economic uncertainty and the absence of pay pressures means that the MPC will hold off from raising rates until August next year," said Investec's chief economist Philip Shaw, who on Wednesday ditched his call for a November hike.
British inflation slowed sharply in September to just 1.2 percent, its lowest in five years, well below the BoE recent projections.
That fall prompted Barclays, the sole bank in the poll expecting a rate move this year, to question its own call.
"We see increased risks to our call for a first rate hike in Q4 2014," economists at the bank wrote in a client note after the inflation data were released on Tuesday. Barclays shifted that call just a few months ago from the second quarter of next year.
World stock markets and crude oil prices have fallen sharply over the past week on fears over the health of the global economy, whose growth prospects have dimmed further as a disinflation threat intensifies.
The vast majority of economists polled - 47 of 58 - still expect the first BoE rate hike to come in the early months of 2015, in line with all Reuters polls since June.
That comes despite the fact most don't forecast inflation to reach the BoE's 2 percent target until the end of next year and the highest forecast puts it at only 2.5 percent sometime next year. In the first quarter it is only seen at 1.6 percent.
But average earnings growth - highlighted by Carney as a factor in deciding when rates should rise - should start to outpace price rises early next year for the first time since June 2008, the poll found.
Short sterling interest rate futures, however, have not fully priced in the first rate move until the second quarter.
JUST AHEAD OF THE FED?
If the poll results are realised it will make the Bank of England the first major central bank to tighten policy, just beating the U.S. Federal Reserve, which is expected to begin raising the fed funds rate in the second quarter.
As repeatedly stressed by Bank Governor Mark Carney, economists also expect any increases to be gradual.
Bank Rate, which has been stuck at a record low of 0.5 percent since March 2009, will only rise to 1.25 percent by end-2015, 2.0 percent in December 2016 and just 2.25 percent by the time 2017 is over - very low by historical standards.
Britain's economy has been enjoying relatively solid growth and that will slow only marginally to 0.6 percent per quarter from now versus last quarter's 0.7 percent, unchanged from a September poll.
Growth will average 3.0 percent this year and 2.6 percent in 2015, the poll found, less than the respective 3.2 and 2.7 percent forecasts given last week by the International Monetary Fund.
The U.S. economy, the world's largest, will steadily expand but growth this year will be slower than in Britain. The euro zone, Britain's main trading partner, will see even slower growth. [ECILT/US] [ECILT/EU]
Britain's strong labour market recovery is showing signs of cooling however, even after the unemployment rate again fell more than expected in the three months to August.
(Polling by Swati Chaturvedi and Siddharth Iyer, editing by John Stonestreet)