The intense quandary facing the Bank of England’s Monetary Policy Committee (MPC) was emphasized today in a knife-edge vote by The Times MPC recommending that the UK interest rate should be kept on hold.

Out of the nine members of the independent panel of economic and financial experts, five said that rates should stay at 5 per cent to ward off inflationary pressures. Three members said that rates should be cut by a quarter point and one, Sushil Wadwhani, urged a half point reduction.

The Bank's MPC will take into account the most recent inflation forecasts, released next week, which are expected to indicate that inflationary pressures are strengthening as the price of oil and food continues to rise and as the pound continues to weaken.

But gloomy figures from both the services and manufacturing sectors in the last two days suggest that an economic slowdown is worsening.

In a verdict which underlined the difficulties the current economic conditions pose for policy makers, The Times MPC members differed on whether rising inflation or an economic slowdown was the bigger immediate threat.

Bronwyn Curtis, chair of the society of Business Economists, suggested that the Bank’s MPC should keep rates unchanged, but said: “There are more visible signs of weakening economic activity ... I would be voting for a pre-emptive rate cut now if cost pressures weren’t still rising ... the risk for the moment is that inflation expectations rise further.”

The danger of rising inflation was also highlighted by Sir Steve Robson, former Second Permanent Secretary to the Treasury, who also said that the MPC should keep rates on hold. He said: “Price pressures are intense and do look very troublesome. The Bank needs to focus on its mission — which is to anchor inflation.”

Anatole Kaletsky, the chief economics commentator at The Times, who voted for a quarter point cut, disagreed. He said that while there were rises in food and oil prices, the fact that these showed little sign of pushing up wages left the door open for a rate cut this month.

Sir Steve was not alone in his call for the MPC to stick to its mandate.

Rupert Pennant-Rea, former Deputy Governor of the Bank of England and chairman of Henderson Fund Managers, who voted to hold, said: “The MPC has to remember its mandate which is to control inflation, not to spare the real economy or the financial system from necessary adjustments.”

However, there were indications that some who voted to keep rates on hold may not take the same approach next month. Sir Alan Budd, former chief economic adviser to the Treasury and founding member of the Bank’s MPC, said: “The current pace of a cut in interest rates every two months seems to be an appropriate response to current economic conditions.”

But several members of The Times panel said that the MPC needed to take more urgent action and deliver the first back-to-back rate cut in seven years.

Geoffrey Dicks, chief UK economist at RBS Global Banking and Markets, who voted for a quarter point cut, said that the Bank had to overcome its “irrational fear of back to back interest rate moves”, adding:"... if, as I expect, next week’s quarterly inflation report says another 25 basis point cut is needed, what really is the point of waiting another month or two?”

Mr Wadwhani, who said the MPC should cut rates by half a point, said: “It is time for the Bank to be pre-emptive and get ahead of the curve on interest rates rather than risk having to play catch up later.”

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