Eight on MPC for rate freeze

A NEAR-UNANIMOUS vote to keep interest rates on hold this month has cast doubt on the inevitability of a May increase in the cost of borrowing.

Minutes of the Bank of England monetary policy committee's latest meeting revealed a vote of eight to one to keep rates pegged at 4%. Only archhawk Sir Andrew Large called for an immediate increase.

However, most of the MPC conceded that with the economy growing above trend and little spare capacity, it would be appropriate to raise rates 'in due course'.

The City had been split virtually down the middle on whether the Bank would lift rates this month and a knife-edge MPC vote had been expected. The minutes come a day after official figures showed inflation fell unexpectedly to 1.1% in March, well below the Government's 2% target.

Economists said a rate move in May could no longer be regarded as a done deal but was, on balance, still likely.

'The data since the March meeting have been on the soft side,' said Jonathan Loynes at Capital Economics. 'However, we still feel on balance that worries over the housing market and rapid growth of debt will prompt a rate hike in May, though these minutes clearly make it an even closer call.'

Adam Cole at Credit Agricole Indosuez said: 'The minutes are perhaps marginally more dovish than might have been expected but do not change our view that rates are going up in May.'

The majority view on the MPC was that the continuing strength of sterling had offset the inflationary impact of the housing market. 'Taken together, those factors suggested little change to the February inflation projection,' the minutes said, adding that for some members the downside risks to inflation had increased because of sluggish eurozone growth and heightened geopolitical tensions.

The bulk of the committee also believed next month's quarterly Inflation Report would provide an opportunity to evaluate the mixed economic news and reconsider some of the unresolved economic issues, such as the reasons for the pick-up in house prices and the relationship with household spending and borrowing.

One member, thought to be Sir Andrew, warned of the risk of a consumer crash as households took on more debt. He also argued rapid growth of debt pointed to continued robust consumer activity in the near term.