Bank voted 8-1 to maintain rates

The Bank of England voted eight to one to keep interest rates on hold at 5%, minutes of its last meeting show.

The only member of the bank’s Monetary Policy Committee (MPC) who favoured a cut was David Blanchflower, who wanted a reduction to 4.75%.

Inflation has risen in recent months, driven by high oil and food prices, making policymakers reluctant to cut rates despite the cooling economy.

The MPC made clear an interest rate cut is unlikely “for a few months”.

‘Letter-writing territory’

Recent data showed the Consumer Prices Index (CPI) reached an annual rate of 3%, above the government’s own target of 2%, further reducing chances of a rate cut.

March’s 0.8% monthly rise in consumer prices was the steepest for nearly seven years.

If inflation tips beyond 3%, Bank of England Governor Mervyn King is obliged to write a public letter to Chancellor Alistair Darling, to explain what has happened and what the bank is doing to address the issue.

The MPC said that “with inflation set to move into letter-writing territory in the next month or two, the next cut looks unlikely to come for a few months unless the activity news is absolutely dreadful.”

“Given the sharp rise in inflation in April – figures that the Committee had at the time of their decision – it is not surprising that eight of the nine-strong MPC voted in favour of interest rates on hold two weeks ago,” said George Buckley, head economist at Deutsche Bank.

Peter Dixon of Commerzbank said the decision was “tactical” because inflation was not high enough “to warrant rate hikes nor growth sufficiently low enough to warrant cuts”.

Recent figures showing weakness in both the manufacturing and service sector have increased pressure on the MPC to cut rates to 4.75%.

David Blanchflower, who was a dissenting voice in January wanting a rate cut, argued that it was “important to look through the short-term spike in inflation” and focus on the “current and prospective weakness of demand”.

Jonathan Loynes of Capital Economics said: “Most believe that a significant slowdown is required to get inflation back to target and were concerned that another cut this month would give the impression that the committee was targeting growth, not inflation.”