The quandary faced by the Bank of England's Monetary Policy Committee has been emphasised in a knife-edge vote by The Times MPC recommending that rates be kept on hold.

Four of the nine members of the independent panel of economic and financial experts said that rates should be cut, with one, Sushil Wadhwani, urging a half-point reduction.

Five members argued that rates should stay at 5 per cent to ward off inflationary pressures.

The MPC will take into acount the most recent inflation forecasts, released next week, which are expected to indicate that inflationary pressures are strengthening as the prices of oil and food continue to rise and as the pound continues to weaken. Gloomy figures from the services and manufacturing sectors in the past two days suggest that an economic slowdown is occurring.

The Times MPC's members differed on whether rising inflation or an economic slowdown was the biggest threat.

Bronwyn Curtis, chair of the Society of Business Economists, suggested that the Bank's MPC should keep rates unchanged. “[However] 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,” she said. “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.

“Price pressures are intense and do look very troublesome. The Bank needs to focus on its mission - which is to anchor inflation,” he said.

Anatole Kaletsky, chief economics commentator for 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 room for a rate cut.

Yet Sir Steve was backed 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, voted for a hold. “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,” he said.

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 a 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.”

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”.

Mr Wadhwani, who voted for a half-point cut, said: “It is time for the Bank to be pre-emptive and get ahead of the curve.”

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