Sir John Gieve, Deputy Governor of the Bank of England, is perhaps being a little harsh on some of his colleagues on the Bank's Monetary Policy Committee. He suggests that they failed to appreciate the danger posed by the bubble in asset prices in recent years and the damage that its bursting could cause to the economy.

Of course, the MPC saw the flood of credit and the boom in house prices, but it did not jack up interest rates because earnings and consumption were not booming. Even if it had used the interest rate lever, which would have been politically very difficult, it would have been ineffective, he says.

Yet some members of the committee were more aware of the threat than others. On August 4, 2005, five months before Sir John became a member, the MPC voted to cut rates by one quarter of a point to 4.5 per cent.

On that occasion, Mervyn King, the Governor, urged no change, but was outvoted. Mr King was joined by three Bank “insiders” - Rachel Lomax, Paul Tucker and Sir John's predecessor Sir Andrew Large - but was outgunned by the four “outside” MPC members - including Richard Lambert, now head of the CBI - who were backed by the Bank's then-chief economist, Charlie Bean.

It was the first cut in Bank rate for two years and was a response to a recent slowdown in the economy.

The minutes of the meeting show that those opposing a rate cut argued that the “economy was still operating close to full capacity”, while “the money and credit data had not pointed to a marked further softening in activity”.

We also know that, at that time, some at the Bank were increasingly concerned about the liquidity pumped into the global economy through low interest rates. Indeed, in a speech that June, Mr King gave warning of the threat posed by the recent sharp increase in UK money supply - highlighting that, in real terms, it was rising more rapidly than at any point since 1997.

Sure enough, within days of that August vote, the inflation figures came in higher than expected and within eight months house price inflation was back in double figures.

Sir John is right that lessons need to be learnt and that central bankers need levers other than interest rates to curb financial excess.

But it is also true that if Mr King had persuaded the MPC not to cut rates, the bubble would have been that bit smaller and the bust that bit less painful.

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