Bank voted unanimously to keep rates steady

Interest rates are set to remain unchanged over the next few months after all nine members of the Bank of England's monetary policy committee (MPC) voted to keep rates steady this month, Bank minutes showed today.

But the minutes of the MPC's December 8 and 9 meeting showed that policymakers held different views on the various risks ahead.

"For some members, the news was balanced and no change in interest rates was appropriate. For others, the downside risks to the inflation projection had increased, but not enough to make a persuasive case for a reduction in interest rates," the minutes said.

The Bank has now left borrowing costs unchanged at 4.75% for four months running after raising them five times since November last year, but analysts said the interest rate outlook for next year is very uncertain. The Bank is having to contend with a mixed economic bag.

According to recent data, economic activity picked up in the fourth quarter, while annual consumer price inflation moved up to 1.5% in November. There are also significant underlying inflation pressures with producer output prices rising at their fastest annual rate for nine years in November, average earnings growth rising in a tight labour market, and the lack of spare capacity.

Against that, the Bank has to weigh carefully the impact of interest rates on the housing market, which has slowed down markedly. In its minutes, the Bank said: "House prices seem to be moving in line with the central projection. There were few signs, so far, of the slowing housing market leading to a sharp slowdown in consumption growth."

Howard Archer, the chief UK economist at the Global Insight consultancy, said he still expected the Bank's next move to be an increase of 25 basis points around next spring.

"However," he added, "housing market price data and survey evidence remain overwhelmingly weak, and if the sector's slowdown shows clear signs of turning into a crash, the odds will swing markedly in favour of the Bank of England's next move being a cut in interest rates."

Another factor that would push the Bank towards lowering rates would be a weakening of the world economy. The MPC said there was now a greater risk of world economic activity slowing down.

"Members thought that there was now a greater risk of weaker world activity than had been incorporated in the November central projection, despite the sharp fall in oil prices from their recent peak," the minutes said.