Bank Unanimous On Rate Freeze

The Bank of England's monetary policy committee (MPC) voted unanimously to hold interest rates at 5.75 per cent this month.

After two months of being split over the position of interest rates - with majority decisions for holding and raising rates in June and July respectively - all nine members of the MPC took the view that a freeze in rates was necessary this month.

However, the minutes of the last meeting released on Wednesday show there was disagreement over the outlook for inflation, which surprised many this week by dipping below the MPC's two per cent target set by the Treasury, as supermarkets' price cutting on food led the consumer price index to 1.9 per cent.

The minutes state: "The near-term [inflation] outlook was still clouded with uncertainty, particularly about the path of household goods, food and utility prices.

"Given the experience of rising inflation last winter, and the fact that other measures of inflation¦ remained high, there was a risk that inflation expectations would be particularly sensitive to further adverse cost shocks."

However, the MPC also stated that "most members emphasised that they had no firm view on whether rates would need to rise further".

The effects of last month's floods could bring food prices up, the MPC warned, while the consequence of the recent substantial volatility in financial and credit markets is still uncertain.

Commenting on the MPC minutes, Simon Ward, economist at New Star Asset Management, said: "The unanimous vote to leave rates unchanged in August was in line with our¦ prediction and the minutes indicate less of a tightening bias than suggested by last week's Inflation Report.

"Coupled with yesterday's dramatic inflation drop and a surprise further fall in average earnings growth to a four-year low, this news strengthens our belief that interest rates have peaked for the year at 5.75 per cent."

With so much uncertainty in the economy, following inflation and stock market falls, the MPC is now expected to hold tight on any further interest rate rises until at least November, also giving time for the most recent rises to filter through and take effect.