November 3, 2017 / 1:49 PM / a month ago

Bank of England hike was a 'one and done', next move not until second quarter 2019 - Reuters poll

LONDON (Reuters) - The Bank of England’s first rate rise in over a decade is for now at least a “one and done” move, according to economists in a snap Reuters poll who said the next increase won’t come until after Brexit in March 2019.

On Thursday, the Bank added 25 basis points to borrowing costs, taking them to 0.50 percent, and many economists polled after the announcement have come around to thinking that Thursday’s hike was justified.

Unlike other major central banks, the Bank is facing inflation running well above target, due mainly to the fall in sterling after last year’s Brexit vote. But it expects inflation to peak at 3.2 percent in October. The Bank’s target is 2 percent.

Policymakers expect only “very gradual” further increases as Britain prepares to leave the European Union. Thursday’s hike will be followed by just two more quarter-point increases over the next three years, according to the assumptions that underpinned the Bank’s latest economic forecasts.

BoE Deputy Governor Ben Broadbent said on Friday the Bank’s signal that it may need to raise interest rates two more times is “not a promise”.

Economists in the Reuters poll, taken after Thursday’s announcement, took the Bank’s Monetary Policy Committee at its word on gradual rate hikes. Their median forecast was for the next 25 basis-point rate increase not to come until the second quarter of 2019 - just after Britain is scheduled to leave the EU.

“Now that the MPC has taken the plunge on a rate rise, the question is whether this marks the beginning of a series of increases in borrowing costs, or if the Committee is now minded to stand pat for an extended period of time,” said Martin Beck, lead UK economist at Oxford Economics.

“We favour the latter prediction. It’s ‘one and done’ for now.”

Markets agreed: sterling GBP= extended its losses on Friday, slipping to a one-month low against the dollar as investors rushed to exit positions.

The U.S. Federal Reserve and the European Central Bank have also taken a cautious approach as they attempt to wean their economies off massive stimulus programmes.

Bank Governor Mark Carney said Brexit talks were likely to be the biggest factor for the next BoE move, either up or down, yet none of the 51 economists polled had a cut in their forecasts and gave only a median 20 percent chance that Thursday’s decision would be reversed.

JUSTIFIED

In a Reuters poll taken ahead of the announcement, 34 of 48 economists said now was not the time for the central bank to be raising rates.

But in a reversal of largely the same sample, 27 of 46 said the Bank’s move was not a mistake, while 19 stuck to their original view.

“It was perfectly justified,” said Jacob Nell, chief UK economist at Morgan Stanley.

“Growth is running above potential and slack is being eroded, and once they had given that strong guidance in September and data in October came in stronger, it would have been much more of a shock and a surprise if it hadn’t delivered.”

Britain’s economy has slowed sharply this year as the jump in inflation has hurt household spending and the uncertainty about Brexit has weighed on investment by businesses.

A Reuters poll of economists last month showed that the likelihood of a disorderly Brexit has crept higher, and there was a 30 percent chance Britain would leave the EU without a trade deal when two-year divorce talks end in March 2019.

Prime Minister Theresa May faces a political balancing act as she tries to meet EU demands for more concrete pledges on Britain’s divorce bill without triggering a backlash from Brexit campaigners at home, some of whom would prefer that she walked away from the talks.

Polling by Mumal Rathore, Khushboo Mittal and Vivek Mishra; Writing by Jonathan Cable; Editing by Hugh Lawson

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