One dissenter as rates remain unchanged

Bank of England policymakers voted 7-1 this month to keep interest rates unchanged at 4.5%, minutes disclosed today.

For the second month running, David Walton voted to raise borrowing costs by 25 basis points. The 7-1 vote was in line with expectations as Stephen Nickell who had voted for a cut last month has left the Bank's monetary policy committee (MPC).

His replacement, the US-based David Blanchflower, voted with the majority at his first meeting. In Mr Nickell's absence, there was no repeat of the unusual three-way split in May - Mr Nickell's vote to cut, Mr Walton's vote to raise and the majority verdict to hold.

The tone of the monetary policy committee's minutes indicated that the Bank would stick to the status quo for the rest of the year, analysts said.

"While the minutes note the upside risks to the inflation outlook, they also acknowledge that there are downside risks as well," said Howard Archer of Global Insight. "This suggests to us that most MPC members are prepared to keep their finger off the interest rate trigger in the near term at least."

The Bank has kept interest rates unchanged since last August and the question preoccupying the City is whether the MPC will raise rates this year or next.

"The recent falling back in equity prices, firmer overall tone of sterling and modest easing back in the public's inflation expectations dilutes the case for a near term interest rate hike," Mr Archer added. "Consequently, we expect the Bank of England to delay hiking interest rates until 2007."

For the MPC, the most significant news since its May inflation report was the rise in the pound and the recent slump in share prices. If the recent gains in sterling and falls in share prices were to continue, the impact on import prices and personal wealth would tend to reduce inflationary pressures, the minutes said.

But, the minutes pointed out, the recent equity and commodity prices falls had not been that large when set against the sharp price increases over the previous year.

As usual the Bank noted upside and downside risks to inflation - currently at 2.2%. The target is 2%. Upside risks included growth in the eurozone and stronger import prices. Downside risks included a more pronounced slowdown in the US, further falls in share prices and slower growth in the UK.

"Given that recent developments had been broadly in line with the May inflation report," the minutes said, "and that there were significant risks to the outlook in both directions, most members felt that the rate should remain unchanged this month."