Hopes that interest rates may have reached a peak, providing some respite for hard-pressed homebuyers, soared yesterday after news that the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to peg base rates a fortnight ago. Most of its members said at the time that they had “no firm view” on whether more moves would be needed.

Mounting expectations in the City that the rate-setting committee will sit on its hands for several months — and may not even set another rates increase — were reinforced by benign official figures showing that the pace of pay increases across the economy had dropped sharply, falling to its slowest in four years at a headline annual rate of 3.3 per cent.

After economists were wrongfooted on Tuesday by other figures which showed that inflation had plummeted below the Bank of England’s target of 2 per cent last month, dropping to just 1.9 per cent, the doveish and uncertain tone to yesterday’s minutes of the MPC’s last meeting spurred a rethink in the City over the outlook for interest rates.

The record of the powerful nine-member committee’s debate showed not only that its main hardliners, Andrew Sentance and Tim Besley, joined in the unanimous vote to keep rates on hold this month, but also that “most members emphasised that they had no firm view on whether rates would need to rise further”.

Since the Bank’s rate-setters had no knowledge at this time of the plunge in headline inflation in July reported this week, this stance suggested that this majority of uncertain committee members would probably now be even more averse to voting for a new rate increase, and keener still to sit on the fence while they assessed the effects of the Bank’s past moves.

“We expect the Bank of England to sit tight now until at least November,” Howard Archer, of Global Insight, the City economics consultancy, said. “A further interest rate rise certainly does not look anything like the strong certainty that it did a week or so ago, and much will clearly depend on how inflation, growth and financial markets develop over the coming weeks.”

City futures markets, which show financial “bets” on the next moves in interest rates, were factoring in barely any chance of another rise in interest rates this year. A week ago, the markets had shown that investors’ money was staked firmly on not one but two increases, which would have lifted the Bank’s base rate to 6.25 per cent, from its present level of 5.75 per cent.

The currency markets reflected the sudden shift in the outlook for borrowing costs, with the pound falling below the $2 watershed that it breached in late June to close in London at $1.9910, as the foreign exchanges took stock of the likelihood that sterling may not deliver such high returns as anticipated previously.

The abrupt reappraisal of prospects for interest rates comes just a week after the Bank’s latest forecasts in its quarterly Inflation Report sent what was regarded as a clear signal that rates would need to rise by another quarter-point for the 2 per cent inflation target to be met in two years’ time.

Most economists still expect rates to rise to 6 per cent, with 32 out of 53 questioned in a Reuters poll last night predicting one more increase. Twenty out of 53 believed that rates had peaked.

However, a number cautioned against overoptimism that higher interest rates had been dropped from the Bank’s agenda, and gave warning that the MPC’s hawks could yet return to the offensive.

In particular, the City’s experts highlighted last week’s comments from Mervyn King, the Bank’s Governor, that inflation was likely be volatile in the short-term, but that the MPC would focus on the medium-term.

While supermarket price wars and early summer sales may have triggered a slump in inflation last month, economists noted that the impact of recent floods on food prices could yet lead to a equally sharp rebound in the pace of price increases.

The Bank has been encouraged to put further increases in interest rates on hold by the present turmoil in world financial markets, which could yet subside and allow the MPC to set aside this concern.

Hopes that rates had reached a high were boosted by official figures for the rate of pay growth, which were released yesterday. The Bank has expressed concern that surging fuel bills would increase wage pressures, but the annual growth in average earnings was revealed to be at a four-year low of 3.3 per cent in the three months to June, down from 3.5 per cent in May.

The weakness of pay pressures came despite the steepest fall in three years of people out of work, according to the Government’s survey-based measure. Numbers out of work on the Labour Force Survey dropped by 45,000 in the three months to the end of June.

On the claimant count of numbers out of work and claiming benefit, the unemployment rate fell to 2.6 per cent, its lowest since April 2005.

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