Top UK economic forecaster says sharp inflation rise a risk - Reuters poll

(Reuters) - British inflation may rebound more sharply than many people think if economic growth picks up, according to the most accurate forecaster in Reuters Polls on 2014 UK economic data. If that were to happen, the Bank of England may raise interest rates sooner than most now expect, according to Daniel Vernazza, an economist at UniCredit who secured first place out of around 40 for forecasts on a range of economic data releases. British interest rates have been at a record low of 0.5 percent since the financial crisis and BoE Governor Mark Carney last week raised the possibility of a further rate cut if inflation remained very weak for a prolonged period. But Vernazza says the UK economy is on course for robust growth this year and inflation will start rising quickly toward the end of this year to just under 1 percent -- similar to the consensus in the latest Reuters long-term economic poll. "Almost all of the fall in headline inflation over the last year can be attributed to falls in food and energy prices," Vernazza said. "But, come year-end, the oil price effect will start to drop out of the year-on-year comparison quite rapidly and, coupled with growing domestically generated inflationary pressure as spare capacity wanes, inflation will likely exceed the BoE's 2 percent target sometime in 2016." The accuracy ranking, calculated by StarMine, was based on estimates for gross domestic product, inflation, retail sales, business surveys, employment data and BoE monetary policy. Vernazza expects UK economic growth to pick up to 2.4 percent this year, compared with the consensus view for 2.6 percent with the risks skewed to the upside, and forecasts the Bank of England will pull the trigger in August. "We expect the first BoE hike in August this year, around six months earlier than is being fully priced in by financial markets," he said. "The Bank said it will look through the temporary impact from oil and food and that is because they ... know towards the end of the year it will come around fairly quickly as a series." When asked about the risks to the British economy from the euro area, in particular Greece, Vernazza said he was less worried now compared with 2012. (Reporting by Rahul Karunakar; Editing by Larry King)