The Monetary Policy Committee (MPC) of the Bank of England voted 7-2 in favour of holding the UK interest rate at 5.75 per cent, as it emerged that Sir John Gieve, a Deputy Governor of the Bank, voted for a quarter-point reduction to borrowing costs.

Minutes from the MPC's meeting on November 8 and 9, show that David Blanchflower, a committee dove, also voted for a quarter-point cut, as Mervyn King, the Governor, was among the majority in favour of keeping the rate unchanged.

Rachel Lomax, the other Deputy Governor, who is responsible for monetary policy, sided with the Governor in voting to keep rates unchanged.

Those seeking a cut argued that the five increases in borrowing costs since August 2006 were now feeding down into the housing market and that waiting to make an adjustment to the interest rate would exacerbate the slowdown.

But those against a move, said: "While there had been a clear change in financial markets and credit conditions, the evidence of significant effects on household or business activity was so far limited."

The seven-strong majority also argued that a reduction in the interest rate could have a detrimental effect on the economy, stating: "... since a reduction in Bank Rate was not widely expected this month, there was a danger that an immediate cut would be misinterpreted, precipitating an unwarranted further fall in the market yield curve."

Sir John, who is responsible for financial stability, gave warning in a speech yesterday that there may be more upheavals in financial markets and that lending could be squeezed more sharply before the end of the year.

He said: "There is still a worry that we haven’t yet seen the bottom. Some markets are still very illiquid. As the year end approaches, we may see some tightening in money markets."

The three-month London Interbank Offerered Rate (Libor), which is the rate at which banks lend money to each other, rose today from 6.48 per cent to a two-month high of 6.52 per cent as banks remained cautious about interbank funding.

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