LONDON (Reuters) — The Bank of England kept interest rates unchanged yesterday and economists are divided over whether two hikes in borrowing costs in the past four months have done enough to curb inflation.Economists polled by Reuters last week had unanimously forecast the bank would leave rates at five percent and market reaction was minimal.

The outlook, however, is less clear and much will depend on the level of wage settlements in the crucial New Year pay round.

“Today’s decision was no surprise but people should not be fooled into thinking interest rates have definitely peaked,” said Graeme Leach, chief economist at the Institute of Directors. “It is still a 50:50 call as to whether interest rates go up again in the New Year.”

Britain’s economy has given out mixed signals in recent weeks. The housing market and services sector continue to accelerate but manufacturing activity and consumer spending appear to be slowing.

Annual house price inflation hit a 20-month high in November, according to Halifax data, while the country’s services sector grew at its fastest pace last month in almost three years.

Manufacturers and retailers, however, look to be having a tougher time. Data on Wednesday showed industrial output contracted in October for the first time in a year and anecdotal evidence suggests consumers are tightening the purse strings.

Shares in Woolworths fell sharply this week when it became the first high street store to warn on Christmas profits and the British Retail Consortium said the value of sales grew last month at the slowest annual rate since March.

The pound’s rise to a six-year high in trade-weighted terms has also entered the monetary policy debate, by dampening import price inflation and making exports more expensive.

“There is clear weakness in manufacturing and a murky outlook for retail sales which may make the Bank think twice before raising rates again,” said Brian Hilliard, chief UK economist at Societe Generale. “The exchange rate is also a factor and yet to be reflected in the data.”

The Bank of England remains upbeat on the growth outlook and predicts the economy will expand three percent next year. Nevertheless recent comments from the bank’s rate-setters have highlighted growing divisions on the policy committee.

Deputy Governor Rachel Lomax, who joined David Blanchflower in opposing last month’s rate rise, said lower oil prices and a stronger pound have improved the inflation outlook. Fellow committee members Charles Bean and John Gieve, however, have highlighted upside risks to the inflation outlook.