The Bank of England's Monetary Policy Committee voted to cut interest rates by the narrowest of margins this month, with Mervyn King breaking with precedent by siding with the minority voting to leave rates unchanged.
The vote was closer than economists expected and the pound extended gains on the news
as analysts concluded that the MPC was unlikely to reduce rates further in coming months.
Richard Lambert, an external committee member and former Financial Times editor, tipped the balance on the nine-member MPC by joining three other external members and Charles Bean, the Bank's chief economist, who had already voted for a rate cut in July.
The four remaining Bank staff - Mr King, the deputy governors Rachel Lomax and Andrew Large, and the executive director Paul Tucker - voted to keep rates on hold, according to minutes of the 3-4 August meeting published yesterday.
That left the committee's chairman in the minority for the first time since the MPC was set up in May 1997. Mr King has in the past said he would be prepared to vote with the minority.
John Butler, at HSBC, said: "The divisions amongst the committee seem deep-rooted and support the view that interest rates are on hold for the foreseeable future."
The five-member camp argued that a reduction was necessary because output growth had been subdued in the first half of the year on the back of sluggish household spending.
These members stressed the downside risks to consumer spending despite signs of a pick-up in the second quarter, referring to a worsening labour market. They saw a need to "validate" market expectations of a rate cut this month, arguing that a failure to lower rates might damage confidence.
Economists still think the Bank is being too optimistic about growth prospects and believe it will have to cut rates again, though probably not before next year.
- INDEPENDENT
