Jan. 14 (Bloomberg) -- The Bank of England, forecast in surveys to raise borrowing costs next month, may wait longer to boost interest rates after a rise in the value of the pound and a decline in factory output cast doubt on the strength of U.K. economic growth, said economists at Lloyds TSB Bank Plc, HBOS Plc and Deutsche Bank AG. The pound has risen 2.8 percent in the past month against a trade-weighted basket of other currencies. Manufacturing production fell 0.7 percent in November, erasing most of the previous month's gain. Retail sales dropped in December for the first time in nine months, a survey showed.
``A rate rise in February used to look like a done deal, but the data hasn't supported the argument lately,'' said Richard Batley, a U.K. economist at HBOS Plc who formerly worked for the government's Debt Management Office. ``The risks are that rates remain on hold for a little longer.'' Futures markets have reduced the chances of a rate increase in the first quarter. The yield on three-month sterling deposits maturing in March dropped to 4.15 percent yesterday in London from 4.25 percent a week ago. The current money market rate is 4.02 percent. Last week, 27 of the 29 economists surveyed by Bloomberg expected the central bank to boost borrowing costs again in February after raising its benchmark lending rate to 3.75 percent in November.
Stronger Pound
``I have doubts about a February rate rise,'' said Trevor Williams, chief U.K. economist at Lloyds TSB Bank Plc. ``Rates may still edge up. But there isn't much pressure for a move. The rise in sterling may push back the prospect of inflation.'' The strength of the pound also may hurt exports more in the coming months. The pound rose to a 12-year high of $1.86 against the dollar on Dec. 12 from as little as $1.54 in April. The value of the euro against the pound was 69 pence yesterday, down from 72 cents in May. The pound's advance ``may reduce the chance of an imminent rate hike on the fear that sterling will drive up even higher against the dollar,'' said John Butler, an economist at HSBC Bank Plc. Some U.K. economists who had previously forecast a February rate increase say they'll be re-evaluating that view over the coming weeks. The bank's Monetary Policy Committee will meet next to set rates on Feb. 4 and Feb. 5. ``Expectations of an early rate rise have been put back,'' said George Buckley, an economist at Deutsche Bank AG in London. ``We've seen weakness in manufacturing data. It wouldn't take much for them to delay a rate rise.''
Weaker Growth
Weaker growth abroad also is weighing on prospects for the U.K. economy. A report from the U.S. Friday showed the world's biggest economy added 1,000 jobs in December, a fraction of the 150,000 that economists had expected. European Central Bank President Jean-Claude Trichet said he's ``concerned'' the euro's strength will hurt exports from the 12 countries using the single currency. The euro rose to as much as $1.2899 on Monday, the highest since it was introduced in 1999. The most important figures will come on Jan. 23, when the U.K. government releases its first estimate for economic growth in the fourth quarter along with retail sales during December. Today, the government probably will report unemployment fell 5,000 last month, according to the median forecast of 28 economists surveyed by Bloomberg News.
Slower Sales
Earlier last week, the British Retail Consortium said sales in shops open at least a year dropped 0.2 percent last month from a year ago following an 0.9 percent gain in November. W.H. Smith Plc, the U.K.'s biggest bookseller, and discount retailer Brown & Jackson Plc have said earnings will slump because of a drop in sales over the holiday period. Retailers including the No.l consumer-electronics seller Dixons Group Plc and Marks & Spencer Group Plc, the largest clothing retailer, will probably report today that sales figures faltered last month, analyst said. ``If retail sales disappoint it's not impossible that the bank would sit on its hands in February,'' said Ross Walker, an economist at Royal Bank of Scotland Plc. In Britain, manufacturing output fell 0.7 percent in November after a gain of 0.9 percent in October, the government said yesterday. Economists had expected growth of 0.3 percent. Trade statistics released earlier this month showed exports from Britain to the rest of Europe fell in November. //www.bloomberg.com