Bank of England policy unchanged, economists predict June 2015 hike - UPDATE

The Bank of England (BoE) has decided to keep interest rates at 0.5% and asset purchases at £375bn, as predicted by analysts.

Economists said it was not surprising the bank's Monetary Policy Committee (MPC) kept interest rates steady at its November MPC meeting amid mixed signs on the health of the economy, with growth looking as if it had cooled in the fourth quarter.

Howard Archer, chief UK and European economist at IHS Global Insight, said it would now be "a surprise" if the bank raised interest rates before we were "well into 2015", with Berenberg's Rob Wood predicting rate hikes "are likely to remain off the table for the next six months", as rate setters wait for growth risks to fade and unemployment to fall further.

"We look for the first hike in June 2015, after the General Election," he said.

While the UK economy as a whole showed signs of continuing to grow strongly, with rising national growth and falling unemployment, economic growth was "looking uneven" and inflation dragged well below the bank’s 2% target and weakening in Germany and France.

The economic buoyancy, led by the services and construction sectors, had led two of the nine members of the MPC to vote for higher interest rates in previous meetings, but sharply slowing manufacturing growth and a cooling housing market muddied the picture for policymakers.

"The deteriorating picture seen in the goods-producing sector is to a large extent due to renewed weakness in the UK’s main export market, the Eurozone," said Markit's Chris Williamson.

"Policymakers are concerned about the impact that slower growth in the euro area could have on the UK, and also that this weakness of the goods-producing sector could become more entrenched and spread to other sectors."

Thus he said there were many reasons why the MPC may decide there is no rush to raise interest rates, allowing the recovery to gain further traction.

Economists roundly believe expectations of a delayed interest rate hike will be reinforced by lower forecasts for GDP growth and consumer price inflation in late-2014 and for 2015 overall in the BoE's forthcoming quarterly inflation report for November, which will be released on 12 November but had been made available to the MPC at their November meeting.

With minutes to November's meeting released on 19 November, BNP added: "We know from recent speeches that some members have become a little more dovish over the past month or so.

"It would not be surprising if one of the members previously voting for a hike decided to change tack for a few months, until there is greater evidence that wage growth is picking up."

But while risks remain to the downside, particularly with the German business climate data having fallen again in October, those concerns "need to be kept in perspective" said Berenberg's Wood.

"[UK] manufacturing PMI rose to 53.2 in October, while hard data this morning showed an industrial output bounceback in September. The picture is one of a mild rather than sharp slowdown.

"The risks may also be dissipating a little as geopolitical tensions ease back, falling food and petrol prices give consumers a boost and rate hikes seem a slightly more distant worry."