News analysis: BoE to see deflation in coming month, to maintain int. rate within 2015

The Bank of England would expect deflation in the country in the coming months next Wednesday, the first time for the Bank to do so over the past two decades.

And the central bank will probably not raise the benchmark interest rate within 2015, analyzed economists here in London.

The 32 percent fall in the global oil price since its Inflation Report that released last November should mean inflation is materially lower in 2015, said Simon Wells, Chief UK Economist at HSBC Global Research, in his report that filed Friday.

Inflation Report, first released in 1993, is the quarterly flagship economic forecasting report of the BoE. February's report will be released next Wednesday.

"We think BoE might make its first ever central forecast of outright deflation. Beyond 2015, inflation should bounce back as the impact of cheaper oil drops out of the annual comparison and, given faster growth, it is possible the MPC will nudge up its inflation forecast for 2017," he said.

He also noted that HSBC does not expect any signals that rates might rise in 2015, the Report may drop a hint that markets could have got too complacent that rates will be held until deep into next year.

The British banking group earlier this week raised its forecast on the country's growth expectation to 2.6 percent from 2.4 percent in 2015. It claims that the dis-inflationary trend in Britain will be beneficial to household's real income growth and consequent consumption.

"The Monetary Policy Committee (MPC) has been clear that it expects rate rises to be gradual and limited, but it has been careful not to be too explicit about the precise timing of the first tightening," he added.

Vicky Redwood, economist at Capital Economist, also commented in a note that deflation will be on everyone's lips at next week's Inflation Report press conference.

Mark Carney, Governor of the BoE, will need to emphasize that the MPC is alert to the risk that deflation becomes ingrained, but is also likely to argue that the period of deflation will be brief and benign, said Redwood.

Data from the Office for National Statistics showed that the inflation rate in December 2014 in Britain was 0.5 percent, lower than the previous month's 1.0 percent.

The London-based economic forecaster also expects that the BoE might lift up British economic growth estimation in the upcoming report, as "more evidence" showed that British recovery is quickly getting back on track. Endit