Prospects for any imminent cuts in interest rates faded yesterday as it emerged that the Bank of England's Monetary Policy Committee voted by a decisive eight-to-one majority to hold borrowing costs earlier this month.

Any expectations of a cut in rates in the next few months were undermined by yesterday's record of the MPC's May debate, a fortnight ago. It revealed that only David Blanchflower, the committee's arch dove, backed a quarter-point cut.

However, a significant MPC faction believes that the impact of tumbling house prices in curbing growth and quelling inflation may be greater than shown in the Bank's hawkish main forecasts, released last week.

Leading economists said that the MPC minutes challenged speculation that rates could stay pegged for up to two years and argued that they left the door open for further cuts later this year, and even as soon as August.

The minutes showed that the MPC discussed the possibility of a rate cut this month, even after they previewed official figures showing that headline inflation hit 3 per cent in April.

Economists said that chances of further rate cuts this year were also increased by the emergence of a grouping in the MPC's majority that may regard last week's hardline Inflation Report as too hawkish.

The quarterly Inflation Report forecasts showed that further rate cuts would lead the Bank to overshoot its 2 per cent target for consumer price inflation in two years' time, despite a sharp slowdown in growth predicted for this year and next. However, the minutes revealed that for some MPC members “there was a significant risk that the impact of weakening property markets on the rest of the economy could be more substantial than implied by the central projection”.

This implies that the housing slump could exert greater downward pressure on inflation than in the Bank's main forecast, creating greater scope for lower interest rates.

Any cuts appear likely to meet resistance from a more hawkish MPC faction, as the minutes spelled out clear divisions within the committee. The more hardline group argued this month that the economy had shown “considerable resilience in the face of variation in credit conditions”. This group also believed that it was possible that spending by consumers and companies “would be little affected by the current pressures on banks' balance sheets” from the credit crunch.

The split in the MPC into two camps suggests that evidence on how the economy is developing will be crucial to its decision-making.Economists said that anxiety in the MPC that present high inflation rates could lead households and companies to come to expect these to persist, and so stoke up yet more wage and cost pressures, was likely to keep rates on hold for several months.

The MPC minutes showed that worries over “inflation expectations” were a key issue.

To avoid encouraging expectations that inflation would be permitted to stay high, members argued against a cut as this “could create the impression that the committee is trying to stabilise output growth rather than maintaining its focus on the inflation target”.

The cost of Rock

— Worries over the precarious state of the public finances were inflamed by official estimates that the nationalisation of Northern Rock will add £92 billion to the national debt, pushing this above the 40 per cent of GDP ceiling set in the Chancellor's fiscal rules

— Preliminary estimates by the Office for National Statistics (ONS) showed that adding the liabilities of Northern Rock to the nation's debt would raise this to 43.1 per cent of GDP

— The ONS has yet formally to incorporate the stricken lender's debt on to the government balance sheet and the Chancellor has made clear that it will not be counted in gauging the 40per cent rule. Yet economists said that the estimates only underlined the fragile shape of the Treasury's books

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