Bank's minutes show Lomax a lone voice against rate cut

The City was last night braced for further cuts in interest rates after the Bank of England revealed it had voted heavily in favour of cheaper borrowing earlier this month.

Minutes of the meeting of the Bank's nine-strong monetary policy committee released yesterday showed an eight-to-one majority supporting a cut in rates to a 48-year low of 3.5%. Only the newdeputy governor, Rachel Lomax, supported keeping base rates on hold at 3.75%.

The MPC voted six-to-three in favour of the status quo in June, but weaker growth at home and abroad persuaded five MPC members, including the new governor, Mervyn King, to switch sides in July.

After keeping rates at 3.75% since February, the MPC concluded that weaker growth and a higher pound warranted an immediate cut, even though some members were hesitant and voted for a re duction as a "precautionary" measure.

In the end, however, Ms Lomax was the lone dissenting voice. She said the outlook was "benign and the balance of risk lay in favour of making no change in interest rates now".

Jonathan Loynes, chief UK economist with Capital Economics, said the MPC had considered delaying a rate cut until the release of the Bank's quarterly inflation report in August, but the committee had decided there was a clear-cut case for a reduction. "Looking ahead, rates are now on hold next month but we still expect two more cuts to 3% before the end of the year in response to further disappointments on the growth front," he said.

The MPC's minutes say growth and inflation in the second quarter of this year have been lower than the Bank was expecting in the May inflation report, its three-monthly snapshot of the economy. Subdued growth in consumption had offset the effects of higher public spending, while the rise in sterling following the depreciation earlier in the year had removed one barrier to lower rates. The Bank also rejected suggestions that lower rates would prompt a fresh bout of speculation in the housing market, even though some MPC members expressed concern that household borrowing was still "unsustainably high and might be exacerbated" by lower rates.

George Buckley, UK economist at Deutsche Bank, said: "Given that the cut is a response to the expected weakening in growth and inflation prospects, we do not, at present at least, expect the likely revisions to the Bank's forecasts in the August inflation report to yield a further cut in rates at that juncture. However, we continue to see rates... at 3% by the end of this year and remaining at that level at least well into 2004."