All 63 economists in a Reuters poll had forecast that rates would be left at 0.5 percent, and markets are not fully pricing in a first quarter-point hike until early 2012. Following are analysts' reactions to the decision.
COMMENTS:
PHILIP RUSH, NOMURA
We continue to expect a rate hike in August, but see this as a very close call as the MPC is wavering in the face of uncertainty. But the underlying picture is much better than simplistic headlines suggest and the MPC has acknowledged this.
If our forecast for Q2 GDP growth of 0.8 percent q-o-q is realised, concerns over winter weakness should subside, bringing a rate hike back on to the agenda.
In May, the Bank saw a rate hike in the second half of 2011 as consistent with balancing the risks around its target in the medium term and this assumed growth nearer to half this pace.
Markets are not pricing the first rate hike from the Bank of England until well into 2012.
Much of the bid has been attributed to global factors, partly related to supply-chain disruptions from Japan and bad weather in the US, which we do not think will persist as long as the market currently seems to expect."
HOWARD ARCHER, IHS GLOBAL INSIGHT
The Bank of England's decision to keep interest rates down at 0.50 percent despite well above-target and rising inflation undoubtedly reflects major 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.
The MPC obviously also has serious concerns about current elevated and rising consumer price inflation; but for now at least most committee members are prepared to hold fire on interest rates to give the economy more of a chance to develop forward momentum.
We expect the Bank of England to hold fire on interest rates until at least November, and we believe that there is now a very real and increasing likelihood that the MPC will not act until 2012."
HETAL MEHTA, DAIWA CAPITAL MARKETS EUROPE
As expected no change in policy. The past few weeks have seen a raft of disappointing data pointing to a subdued economy, and markets have significantly pushed back their expectations for the first interest rate hike well into next year, which seems to us entirely rational.
Interest rates have now been at 0.5 percent for over two years, while the stock of asset purchases has remained at 200 billion pounds for more than a year.
Although near-term inflation is still a concern for the bank as commodity price increases continue to feed through, once the increase in VAT and high commodity prices fall out of the annual calculations, it is likely to drop close to the 2 percent target next year."
JAMES KNIGHTLEY, ING:
No surprise given the recent run of soft activity data and worries about the momentum of the global recovery.
Consequently the market has pushed back its expectations for the timing of the first UK rate hike to March next year.
However, with inflation likely to move above 5 percent in the next three to four months on the back of rising utility bills and food prices and with employment and employment intentions surveys remaining firm, we feel that the balance of probabilities favours an earlier move.
Indeed, we believe the timing of the Easter/Royal Wedding/May day holiday period has distorted the recent data flow and we expect to see some improvement in the numbers over coming months.
The fact Andrew Sentance has left the MPC suggests the vote was more likely to be 7-2 in favour of no change to rate today, but on balance we still favour a November rate hike.
Policy tightening is likely to be very gradual though given significant domestic and international uncertainties, with rates rising in 25bp per quarter stages thereafter."
Comments obtained before the decision: LEE HOPLEY, CHIEF ECONOMIST, ENGINEERING EMPLOYERS' FEDERATION
This decision is no surprise as even though inflation is still coming in uncomfortably high, the medium-term economic picture remains murky.
With weak underlying growth, ongoing Eurozone troubles and volatile commodity markets, it is still too early for a rate rise.
"The more interesting news is likely to come later this month when we see if the new member shifts the balance of views on the Committee. However, it still seems a move on rates will not be forthcoming until the economic outlook becomes much clearer."
IAN MCCAFFERTY, CHIEF ECONOMIC ADVISER, CONFEDERATION OF BRITISH INDUSTRY
This decision is not surprising as the MPC is waiting for clearer signs that growth is gathering pace before changing its stance on interest rates.
Although the recovery is expected to make further headway into the second half of the year, households continue to face particularly challenging conditions, and business confidence remains fragile.
However, with further price pressures in the pipeline, the Bank needs to remain vigilant to prevent inflation expectations picking up further.
In acting sooner rather than later, the Bank can ensure that future rate rises will be only gradual and modest. At any stage in the cycle, the last thing business needs is an abrupt and aggressive set of rate hikes."
COPYRIGHT REUTERS, 2011