MPC split over interest rates

Three members of the Bank of England's interest rate-setting body kept up pressure for a cut in the cost of borrowing this month, it emerged today.

Minutes from the meeting of the Bank's monetary policy committee (MPC) two weeks ago show members voted 6-3 in favour of keeping rates at 3.75% for a fourth month.

The bank's governor, Sir Edward George, chairing his last MPC meeting, was among those to vote in favour of no change after the committee digested details of improved domestic demand and an improved outlook in the United States.

Last month members voted by the narrowest of margins to keep rates on hold but new member Richard Lambert voted with the "hold" camp this time around.

Many City experts believe the Bank could vote for a cut next month after losing patience with the pace of the UK's economic recovery.

But at this month's meeting there was concern a cut in rates could reignite the housing market, which members said had slowed by less than expected.

Today's minutes added: "There remained a concern about the vulnerability of households to adverse shocks, given the build-up of household debt in recent years.

"A reduction in interest rates risked adding unnecessarily to that vulnerability, by encouraging a rapid further accumulation of debt."

Three MPC members - Kate Barker, Marian Bell and Steve Nickell - all voted in favour of a 0.25% cut in rates, arguing that there was no sign that UK exports were rebounding as expected.

They added that pay settlements and earnings growth meant a cut in rates would not unduly derail the Bank's inflation target of 2.5%.

The minutes added: "A boost to the economy was therefore warranted, to offset the current weakness in activity and to ensure that output returned quickly to trend.

"If aggregate demand were to recover rapidly, any reduction in interest rates could quickly be reversed."