Bank minutes show poor sales holding rates steady

Only one Bank of England policymaker voted to raise interest rates earlier this month, it emerged today, as the majority remained preoccupied with a slowdown in consumer spending.

Minutes from the May 6 and 9 meetings of the Bank's monetary policy committee (MPC) showed Sir Andrew Large, the deputy governor, was a lone voice as his eight colleagues voted to keep rates unchanged at 4.75% for the ninth month running.

At both the March and April meetings two MPC members, Sir Andrew and Paul Tucker, voted for a 25 basis point rise in borrowing costs.

Today's minutes said there was little sign of inflation expectations moving significantly away from target and inflation itself was currently close to target "so there was some scope to accommodate the first round effects of the oil price rise".

The Office for National Statistics yesterday said inflation remained steady at 1.9% last month, just below the Bank's 2% target. In its quarterly inflation report last week, the Bank said it expected inflation to head above its target in the next few months but to fall back later in the year as some temporary upward effects, such as oil prices, wear off. Oil prices have fallen by nearly a fifth from the record levels hit this year.

Analysts said the tone of today's minutes and last week's inflation report indicated that interest rates had peaked and that the next move would be down, rather than up as anticipated just a few weeks ago. In the past few weeks, evidence has piled up of weaker consumer spending, with shops and official statistics pointing to weaker sales.

Howard Archer, of the consultancy Global Insight, said the minutes "support our recently changed view that interest rates have now peaked. Even so, we do not expect an interest rate cut to occur until early 2006, unless there is sustained evidence of significant consumer retrenchment over the coming months."

In its minutes, the Bank said there was a risk that consumption growth would not recover as quickly as expected, but there was also a risk of a pickup in inflation.

Sir Andrew focused on the inflation risk. Surveys indicated future consumption strength, he said, while the pickup in wholesale prices in April together with rising import prices could presage higher prices at the retail level.

The minutes said the two most important risks - the outlook for consumption and the recent rise in inflation - would have opposite implications were they to materialise.

"They posed the committee with a challenge ... It was not yet clear which of the two risks ... was the more likely to crystallise," the Bank said.