Bank chiefs disagree over lending rate

Minutes of the June rates meeting showed a surprise seven-to-one vote after Monetary Policy Committee (MPC) member Andrew Sentance said the cost of borrowing should rise by 0.25 per cent.

Rates were kept on hold at their historic low of 0.5 per cent, but the revelation of a disagreement among the MPC – the first on rates since February 2009 – highlighted increasing concern at stubbornly high inflation.

Economists said news since the rates decision should have further calmed MPC worries over inflation.

Budget tax hikes and lowered growth forecasts suggest inflation will fall further and see interest rates kept at their record low "for some time yet", said Vicky Redwood at Capital Economics.

She warned that rather than tightening monetary policy, the Bank may even be forced to increase support for the economy after yesterday's Budget blow to spending and taxes.

While the MPC has remained unanimous this month on halting the 200bn quantitative easing programme, Ms Redwood expects another "50bn or so" to be announced later this year or early in 2011 to combat disappointing growth.

The Bank also released its latest summary of regional agents, which show that exports have continued to recover with manufacturing output continuing to rise.

The agents, who include Paul Fullerton in Yorkshire and Humber, said many businesses ascribed the pick-up in exports to a recovery in world demand, particularly in the United States and Asia. The agents also found an increasing willingness among exporters to consider new and fast-growing markets.

Stronger export performance and some domestic demand helped manufacturers to report increased output, said the agents, who have seen seeing rising production in the automotive sector.

In the construction sector, the pace of contraction has slowed with some more housebuilding in the private sector, but the lack of credit continues to restrict activity, the Bank added.