Every member of the Bank of England's Monetary Policy Committee backed this month's rate cut, although one voted for a more aggressive decrease.

The minutes of the MPC's meeting, published yesterday, show that the members voted eight to one to cut rates by 0.25 per cent to 5.25 per cent. David Blanchflower, the arch-dove, voted for a 0.5 per cent decrease.

The minutes reveal the difficult balancing act that the MPC is having to perform as it tries to cope with slowing demand and the threat of higher inflation on the back of rising energy and food prices.

Howard Archer, of Global Insight, said: “The Bank of England remains particularly concerned that a near-term spike in inflation resulting from higher energy, food and import prices will lift inflation expectations and thereby affect the medium-term behaviour of price- and wage-setters.”

Data released yesterday by the CBI showed that the number of manufacturers expecting to raise their prices in the next three months exceeds those who were expecting to cut prices by 22 per cent, one of the highest levels on record.

MPC members felt that an immediate rate cut was needed particularly because of the fallout from the credit crunch. The minutes said that interest rates were “probably still bearing down on demand” and attributed this in part to higher margins between the bank rate and money market rates. Libor rates soared late last year in the wake of the credit crisis.

Professor Blanchflower felt that “more weight should be placed on the risk of a very sharp slowdown in UK growth”.

Vicky Redwood, of Capital Economics, said: “Blanchflower clearly puts more weight on the downside risks to growth than other members, with recent speeches showing that other members see the risks as more finely balanced.”

Economists predict that rates will not be cut again until April or May. However, business groups called for an earlier cut to help to boost growth. David Kern, economic adviser to the British Chambers of Commerce, said: “Given the current balance of risks in the economy, we urge the MPC to cut interest rates to 5 per cent at the March meeting.”

The MPC may be heartened by new figures showing that gross mortgage lending rose by 11 per cent in January, compared with December. Figures from the Council of Mortgage Lenders (CML) showed that the total sum of loans granted to borrowers was £26.5 billion in January, up from £23.9 billion in December but down slightly from last January's figure of £26.6 billion.

Yet any cheer may be shortlived. Michael Coogan, the CML director- general, said that mortgage approvals were set to fall. “Gross lending held up well in January,” he said.

“However, there is considerable uncertainty in the housing market at the moment and we expect lending volumes to be lower in the coming months.”

This week Kate Barker, a member of the MPC, said that a downward spiral of house prices and a drop in mortgage lending were the biggest short-term economic threats.

She said that the MPC would be paying attention to the financial and property markets. This month's rate cut was the second in three months, after five rises in interest rates in the previous 18 months.

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