Three-way split on rate decision

July's decision to keep interest rates unchanged was a difficult one.

The majority of Bank of England policymakers voted to keep rates steady at 5% at its July meeting, but one voted for a cut and another for a rise.

The surprise split underscores the challenge faced by the Bank's Monetary Policy Committee (MPC) as it balances slowing growth with rising inflation.

Minutes of the meeting on 9-10 July showed that Timothy Besley wanted to raise the cost of borrowing to 5.25%.

David Blanchflower voted to reduce rates to 4.75%.

'Difficult decision'

The Bank said that inflation in June had been higher than expected but that data also suggested that growth was continuing to slow.

"For all members of the committee, the decision was a difficult one," the minutes said.

"A rate change this month would be a surprise at a time when credit and other financial markets remained fragile," it added.

The Bank has cut interest rates three times since August as the credit crunch has taken its toll on the wider economy.

Knife edge

The BBC's economics editor Hugh Pym said that the next interest rate decision, which is due in August, was also likely to be balanced on a knife-edge.

He explained that by then there would be more data on the extent of the economic slowdown and the Bank would have updated its inflation forecast.

Ask five economists the same question you will get six different answers Hugh Pym, BBC economics editor Read Hugh's analysis

"The old joke says that if you ask five economists the same question you will get six different answers," he said.

"It is not such a laughing matter when there are three different answers from the experts striving for the correct response to such troubled times for the economy."

Predicament

The vote for a rise in interest rates surprised financial markets and analysts said it signalled that further rate cuts might not be forthcoming.

Vicky Redwood, UK economist at Capital Economics, said the split would bring talk of a rate rise onto the agenda.

"We still think that a rate rise will be avoided. But a rate cut before November at the earliest now looks even more unlikely."

It was the first time the nine-strong MPC had been split three ways on the direction of interest rates since May 2006.