Bank to hold fire as growth cools - Reuters poll

A median of forecasts showed the UK central bank would begin hiking its base rate by the end of the second quarter of 2011, starting with a 25 basis point rise from its present record low of 0.5 percent, unchanged from last month's poll.

But for the first time this year, no economist thought Bank would raise rates before the end of 2010 -- something considered a foregone conclusion in polls conducted this time last year.

Respondents cited the expansion of austerity measures and a growing chance European economies will follow the U.S. economy in slowing down as factors that will override concerns about above-target inflation.

The Monetary Policy Committee will have to wait and see how the government's budget cuts, which will be detailed by each ministry in October, will affect the real economy.

With a significant fiscal tightening on its way and credit flows likely to remain subdued for a while, we cannot see rates returning to their long-term average for a number of years, said Philip Shaw of Investec.

Britain's economy expanded 1.2 percent in the second quarter, its fastest pace for nine years, but analysts expect this to shrivel to around 0.3-0.5 percent in each quarter through to the end of next year.

Retail sales and consumer confidence figures over the last month have been buoyant, but business surveys of the private sector support expectations for a slowdown.

A purchasing managers index on Wednesday showed UK factory order books growing at their weakest pace in more than a year in August, while overall factory activity growth hit a six-month low in the neighbouring euro zone over the same period.

Figures on Tuesday also showed net lending to British households unexpectedly fell to a four-month low after a sharp decline in mortgage lending.

INFLATION TAKES BACK SEAT

In the face of global economic uncertainties and severe budget cuts, economists said above-target inflation will do little to skew the outlook for interest rates in an upward direction soon.

Although inflation is set to top the 3 percent psychological mark for much of this year, monetary policy can do little with respect to the near-term inflation outlook given volatility in oil and food prices, said Lena Komilvea of Tullett Prebon.

British consumer price inflation slowed in July to 3.1 percent, stubbornly above Bank's 2 percent target and one reason why MPC member Andrew Sentance has voted for a hike at the last three rate-setting meetings.

Sentance is on his own, in our view, said Charles Davis of the Centre for Economics and Business Research.

There are clear downside risks to growth in H2 2010 and into 2011 from fiscal consolidation at home and abroad and the weaker-than-expected U.S. recovery.

The poll also showed few economists expect the bank to extend its 200 billion pound quantitative easing (QE) programme.

No-one thought the bank will announce any change to interest rates or QE at its September 9 meeting, although six out of 41 economists thought the bond-buying programme would eventually finish at either 225 billion or 250 billion pounds.

(Polling by Bangalore Polling Unit, Analysis by Sarmista Sen, Editing by Patrick Graham)