Bloomberg/London

The Bank of England’s view that UK growth can resist the pressure of a global slowdown has the backing of economists.
Eighty percent of respondents to Bloomberg’s monthly survey said the central bank is correct in its assessment that the turmoil isn’t yet having a material effect. That judgment was reiterated by policy makers Kristin Forbes and Ian McCafferty in the past week, with the latter saying there’s little evidence of a negative transmission to Britain.
Key for investors will be how this view feeds in to the debate about when to begin raising the benchmark interest rate from a record-low 0.5%. With inflation below zero, McCafferty is currently the only policy maker voting for an increase, though Forbes has said she favours tightening soon.
“It’s on the MPC’s watch list, but it’s one of a number of factors,” said Philip Shaw, an economist at Investec. “We’re not witnessing anything directly at the moment, but given the interconnectedness of the global economy, there could be second round effects.”
BoE Governor Mark Carney has previously said he expects the outlook for the key rate to sharpen around the turn of the year, though he hasn’t commented on monetary policy since the MPC’s October 8 decision. He was due to deliver a speech in Oxford later yesterday to coincide with the publication of a BoE report into EU membership and monetary stability.
Some economists have pushed back their forecast for the first BoE rate increase to May 2016 from February, while investors aren’t fully pricing in a BoE rate increase until beyond next year. The two-year gilt yield is at 0.57% and the 10-year is at 1.86%. The 10-year hasn’t closed above 2% since late July.
Countering the relatively upbeat outlook for the economy, economists in the survey also expect the central bank to cut its growth and inflation projections when it publishes new forecasts in November. Almost 60% of those surveyed see a reduction in the growth outlook, with 65% predicting an inflation downgrade.
There’s reason for caution. While UK GDP has grown for 10 straight quarters and productivity is finally beginning to pick up, emerging-market risks have increased and domestic surveys point to a slowdown in manufacturing and services in recent months. At the same time, inflation is well below the BoE’s 2% goal and officials expect it to stay shy of 1% into 2016.