LONDON (Reuters) -
The Bank of England held interest rates at a record low 0.5 percent as expected on Thursday, as concerns about Britain's lackluster economic recovery outweighed worries about high inflation.
None of the 60 economists polled by Reuters last week had forecast a rise, and money markets are not fully pricing in a hike until the middle of next year.
Following are analysts' reactions to the decision.
PHILIP SHAW, INVESTEC
"Any change in policy this time was extremely unlikely. Instead the main market question from the meeting lies with the extent of any evolution of the debate on QE, following last month's suggestion from some members that more asset purchases might be justified.
"We would not completely rule out the MPC restarting QE at some stage, especially if the recovery shows signs of petering out. However the bar for resuming asset purchases is likely to be high, especially with inflation running at more than double its target."
PHILIP RUSH, NOMURA
"No change in policy had been widely expected going into the meeting, including by us, so no detailed explanatory statement was published. Noisy data have continued to obscure what is happening, and the mix of strong inflation and weak growth suggests different policy approaches are warranted.
"The MPC appears stuck in the middle and we think it is likely to remain so for a considerable period to come. But in our view discussion of further quantitative easing is largely related to tail risks and we see the bar to its use as very high.
"Although growth developments have been consistent with a later start to the rate hiking cycle, we think the market has taken this story too far. Even if the Bank hikes in February 2012 as we expect, we think it may have waited too long and risks overshooting its inflation target in the medium term."
JOOST BEAUMONT, ABN AMRO
"It is likely that the MPC will sit on its hands for some time to come. We expect the first rate hike in February next year, as by then most of this year's fiscal consolidation measures have been implemented, while at the same time the economy should have regained momentum, paving the way for the MPC to start a tightening cycle."
"Overall, we think that the bar for more asset purchases is relatively high against the backdrop of sticky high inflation. Meanwhile, recent data have been consistent with the economy currently going through a weak phase, but have not pointed to a slowdown large enough to turn on the printing press again."
HOWARD ARCHER, IHS GLOBAL INSIGHT:
"The Bank of England's decision to keep interest rates down at 0.50%despite well above-target and likely to rise consumer price inflation reflects serious concerns within the MPC over both the current softness of the economy and the outlook - particularly given that fiscal tightening increasingly kicked in from April and that the global economy is currently struggling."
"Unchanged monetary policy in July undoubtedly once again masked a split within the MPC over what direction monetary policy should take, but it is notable that the doves currently seems to be on the ascendancy at the expense of the hawks.
"It now looks probable that an interest rate hike will be delayed until 2012, and very possibly well into the year.
Indeed, mounting growth concerns mean that if the Bank of England does act this year, it is more likely to relax monetary policy through reviving Quantitative Easing (which has been on hold since February 2010) rather than to raise interest rates. However, given still significant inflation risks, we believe that more Quantitative Easing this is unlikely to occur unless the economy really goes belly up over the coming months."
Comments obtained before the decision:
LEE HOPLEY, CHIEF ECONOMIST, ENGINEERING EMPLOYERS' FEDERATION
"The decision for no change was a sure fire bet. Inflation may still be uncomfortably high, but the outlook hasn't materially shifted. On the growth front, however, there are now some emerging signs of weakness at home and abroad.
"Given the balance of views, the committee looks set to wait and see how a number of global uncertainties play out over the next few months, and whether some of the weakening we've seen on the UK front proves to be temporary."