Signals from the Bank of England that persistent inflationary pressures will prevent it from cutting interest rates are being challenged by The Times Monetary Policy Committee (MPC).

Several members of the panel recommend that the Bank should cut rates this month, despite certainty in the City that borrowing costs will be kept on hold.

The division among The Times's panel of financial and economic experts, which voted for a hold in rates, emphasises the dilemma for the Bank over conflicting pressures from rising inflation and faltering growth.

Two of the members of The Times MPC said that the Bank should cut rates by a quarter-point as an early attempt to head off a sharp slowdown in growth prompted by falling house prices and they suggested that rates should fall further this year.

However, the seven-strong majority in this month's vote indicated that dampening inflation and inflation expectations should be top of the agenda, with one member calling the verdict that rates should be held an “easy decision”.

Several said that recent data from the Bank suggesting that CPI inflation could reach 4 per cent by the end of the year indicated that interest-rate changes were off the agenda for months to come unless there was another financial shock such as further rises in utility prices or food prices.

There was also disagreement about which way rates would move later in the year. Martin Weale, director of the National Institute of Economic and Social Research, said that increases in rates were as likely as decreases this year. Bronwyn Curtis, chair of the Society of Business Economists, said that market expectations of rate increases later in the year were overly pessimistic.

Sir Alan Budd, former chief economic adviser to the Treasury and a founding member of the Bank's MPC, said: “I believe rate cuts will be justified later this year.” Yet both he and Sir Steve Robson, former Second Permanent Secretary to the Treasury, said that rates should be kept on hold this month as a signal of intent.

Sir Alan said: “It is important for the MPC to confirm it will not allow the current increase in inflation to become embedded.”

Sir Steve said that a hold in rates would not only underline the growing danger of inflation but also serve as a reminder of the need to rebalance the economy.

While inflation was the main consideration for the majority of the panel, Sushil Wadhwani, former external member of the Bank's MPC, and Anatole Kaletsky, Editor at Large and chief economics commentator at The Times, were more concerned with the downturn in the housing market.

Mr Kaletsky said that Britain was on the brink of a severe housing-led correction and that the MPC needed to take action with some urgency. “Monetary policy will have to be eased very substantially at some point. The sooner this process begins, the smaller the risk of a monetary over-reaction.”

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