The Bank of England's interest setting committee split three ways for the second month running when it voted to the official Bank rate unchanged at 5.0 per cent at its meeting earlier this month.

Neither Tim Besley, who voted for quarter-point increase, as he did in July, nor David Blanchflower, who has repeatedly voted for a cut in recent months, succeeded in recruiting new supporters.

Minutes of the meeting published yesterday showed the other seven committee members again supporting no change.

The monetary policy committee agreed that "the inflation outlook was unusually uncertain".

The outlook was dominated by two conflicting economic shocks - surging energy and import prices driving inflation higher and depressing the buying power of incomes and tough credit conditions reducing spending.

"Over the three months since May, the news had suggested that the severity of both shocks had increased," the minutes noted.

"Some measures of inflation expectation had risen. Over the past month, however, while the activity news had continued to worsen, the news on the near-term inflation outlook had been more mixed."

The price of oil had fallen by about 15 per cent. Other commodity prices, including those for food and metals, had come down, too, although prospects remained uncertain.

"The main questions for the committee," the minutes recorded, "were the likely degree of persistence in inflation and how much spare capacity (in the economy) would be needed to offset that persistence.

The Bank's official projection was that flat output over the coming year and the resulting margin of slack in the economy should anchor expectations of future inflation and bring it back to a little below the Bank's two per cent target within two years.

But this stance taken by the seven-strong majority - that the present surge in inflation should right itself - came with a warning: "Most members considered, though, that the balance of risks to inflation was on the upside."

Prof Besley argued that a pre-emptive interest rate increase would help anchor inflation expectations and lessen the need for a tougher policy in future.

Prof Blanchflower took the opposite view, making the case for a cut to moderate the economic slowdown.

Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club, commented "The majority of MPC members thought the current weakness in the economy and the resulting spare capacity was enough to bear down on inflation without the need for an increase in the interest rate.

"ITEM still believes that interest rates will stay on hold during the summer months, but the possibility of a cut in November seems increasingly likely."

Matthew Sharratt at Bank of America said "We thought two may have gone for a cut". The minutes were consistent with a bias towards lower interest rates that he detected in the Bank's latest "Inflation Report" last week.

"We may be seeing the marginalisation of Besley's vote and a shift to Blanchflower's view, "he added.

Jonathan Loynes, chief European economist at Capital Economics, noted "there is little here to suggest that other members are about to join Blanchflower in voting for a cut in the very near future. Nonetheless, with inflation close to a peak and the economy heading towards recession, we still think rates could be falling by the year- end and will eventually drop much further than the markets expect."

The possibility of a cut in November seems increasingly likely

Hetal Mehta, Ernst & Young ITEM Club

(c) 2008 Birmingham Post; Birmingham (UK). Provided by ProQuest LLC. All rights Reserved.