MPC unanimous on rate pause

The Bank of England sets interest rates monthly

The Bank of England voted unanimously to keep interest rates on hold in May.

The minutes of the Bank's Monetary Policy Committee (MPC) reveal that its nine members all voted against a rate rise this month.

In the previous month, the Bank was split, with only a 6-3 vote on holding rates steady.

The change in sentiment among the "hawks" - those who want more aggressive action to cur inflation - seems to have mainly been due to a slowdown in UK growth.

In the first quarter of the year, the economy only grew at a annual rate of 1.8%, well below the government's forecast for the year of around 3%.

In addition, the strength of sterling, which surged as the euro plummeting on foreign exchange markets, helped keep inflation in check.

The minutes reinforce the impression that the Bank is unlikely to raise interest rates in June, and that indeed interest rates may stay at the current rate for some time.

"I think the fact that the MPC, and perhaps the market as well, is becoming a bit more concerned with growth outlook implies that we are close to the peak in base rates," said John Shepard of DKB.

Sterling fell to a four-year low against the dollar on Tuesday of $1.4915 on expectations that interest rates would continue to be higher in the US than the UK.

Sterling intervention

The minutes reveal that one MPC member wanted to intervene to help lower the value of the pound against the euro.

But most members of the committee thought this was not appropriate.

Nevertheless, the sharp appreciation in the value of the pound was one of the factors that led the MPC to hold off further rate rises.

There was sharp disagreement among members about longer term inflationary pressures.

Some members continued to worry about the strength of domestic demand and wages pressure in the labour market.

Others argued that productivity gains from the new economy could keep prices in check.

There was also concern about the growing imbalances in the economy between the manufacturing and service sectors, which could make it more difficult to implement monetary policy in the future.

Some members noted that it was "by no means assured" that small changes in interest rates could guarantee hitting the inflation target and stabilising economic output.