Europe News

Weak PMI reinforces case for Bank of England to hold fire

Andrew Holt | Digital Vision | Andrew Holt

It looks like it's steady as she goes when the U.K. central bank's monetary policy committees meets this Thursday to decide on interest rates and bond-buying, said analysts, after disappointing industrial output data cast doubts on the strength of the recovery.

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The Bank of England (BoE) is scheduled to announce changes — or lack thereof — to monetary policy at 12 p.m. London time. It has purchased £375 billion ($599 billion) worth of assets since 2009, and has held base rates at a record low of 0.5 percent since March 2009.

Jens Larsen, the chief European economist at RBC Capital Markets, said the weak factory data for August highlighted the fragility of the U.K. upturn, and that the BoE was unlikely to raise rates before 2016.

"Given the framework, it is unlikely there will be any changes on Thursday," he said.

"Today's industrial production numbers remind us that the U.K. recovery will be an uneven affair… we have had consistent positive surprises for the last four or five months, and suddenly we have had data that is a little more balanced."

Derek Halpenny, the European head of market research at Bank of Tokyo-Mitsubishi, said that future data was likely to fall back in line with more moderate growth rates, with personal spending still weak due to negative real incomes.

And while the euro zone economy has stabilized, events elsewhere mean the U.K. still faces external pressures, he added.

"When you consider what is happening to the U.S., the downgrade to emerging market growth, and weakening China growth, it is wrong to assume the external story is necessarily favorable," Halpenny said.

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—By CNBC's Katy Barnato. Follow CNBC on Twitter: @CNBCWorld