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Last Updated: Wednesday, 17 August 2005, 10:37 GMT 11:37 UK
UK rate cut vote was 'close call'
Bank of England Monetary Policy Committee
MPC members said their cut could be reversed in coming months
The Bank of England's decision to cut interest rates to 4.5% was finely balanced, minutes of the meeting show.

The Monetary Policy Committee (MPC) voted by just five to four to cut rates by a quarter percentage point.

Bank of England Governor Mervyn King was one of the four against the cut, and those backing a drop felt the move could be reversed if needed in future.

The August cut had been widely expected, but the minutes suggest a further drop could be some way off.

According to notes of the MPC's discussions Mr King and fellow members Rachel Lomax, Andrew Large and Paul Tucker believed it was too early to conclude that inflationary pressures had eased.

Inflation fears

Their beliefs seem somewhat borne out by inflation data released by the Office for National Statistics (ONS) on Tuesday.

In practical terms this means rates are on hold for quite some time
Philip Shaw, analyst

Those figures showed inflation rose 0.3% between June and July to 2.3% - taking it above the government's 2% target - driven by surging oil prices.

Mr King's reluctance to cut rates, amid fears of reigniting inflationary pressures, left the Bank of England's Governor in a minority at the MPC for the first time in its eight year history.

Bank of England chief economist Charles Bean and other, external, MPC members argued that a cut was needed to boost consumer confidence and as a preventative measure to avoid bigger moves later.

High Street retailers have long been complaining of a slowdown in consumer spending, with sales in the three months to June growing at their slowest rate since February 1999.

'No change' ahead

"The minutes are unprecedented and a huge surprise," Ross Walker, of RBS Financial Markets said.

Analysts - who had expected only one member to oppose the cut - said the decision now meant that rates would be likely to stay on hold for some time.

"In practical terms this means rates are on hold for quite some time until the economic data decisively point in favour of another interest rate cut," said Philip Shaw, analyst at Investec.

Global Insight economist Howard Archer added that the minutes "reinforced" the message in the Bank's August inflation report that it was in no rush to cut rates.

"It is possible that August's reduction could turn out to be the only cut in this cycle," Mr Archer warned.

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