Bank unanimous on interest rates

All seven of the Bank of England's policymakers voted to keep interest rates at 4.5% at this month's meeting, minutes revealed today.

There was no discussion of raising or cutting rates as the monetary policy committee (MPC) kept borrowing costs unchanged for the 11th month running.

Although the July decision was uneventful with recent developments broadly in line with the May inflation report and with significant risks in both directions, the subsequent news that inflation rose sharply for June has put pressure on the Bank to raise rates sooner rather than later.

The Office for National Statistics yesterday said the inflation rate in the year to June was up by 2.5%, its highest level since Labour came into power in 1997, up from 2.2% in May.

The ONS said soaring gas and electricity bills accounted in large part for the sharp rise in the consumer prices index.

Analysts said the Bank was unlikely to raise rates next month, but that the chances of an increase before the end of the year had increased substantially amid fears that higher energy bills will feed through to bigger wage claims - the so-called second-round effects of rising energy costs.

"The MPC will be ever more alert for signs that second-round effects are developing, and the odds that interest rates will rise before the end of the year have shortened markedly," said Howard Archer of Global Insight.

Today's minutes said the upside risks to inflation were broadly the same as those identified last month. Growth in the eurozone and Asia might well turn out to be stronger than anticipated and consequently inflationary pressures might turn out to be stronger than expected.

Moreover, sharp increases in property and shares over the past year still posed a risk to inflation.

As for the downside risks, the minutes said there was a risk that house and share prices might fall further in the coming months and that the slowdown in the US might be sharper than had been assumed in the May inflation report.

The Bank said a key downside risk to inflation was that recent labour market developments could mean a supply shock is occurring in the UK, in other words that spare capacity in the economy is actually higher than suggested by GDP numbers.

The MPC normally has nine members. But one, David Walton, died shortly before the July meeting while another, Richard Lambert, left in March. The Treasury has since named two replacements.