Four heavyweight members of the Bank of England's nine-strong rate setting committee opposed a cut in interest rates at their meeting earlier this month, including the Bank's governor Mervyn King and his two deputies Rachel Lomax and Sir Andrew Large.

In a closer-than-expected vote that is bound to dampen expectations of a further cut in the cost of borrowing in the near term, Mr King and his two deputies were joined by Paul Tucker in opposing a cut in the cost of borrowing.

These four were outvoted by the five other members of the committee and the Bank of England cut the headline interest rate by 0.25 per cent to 4.5 per cent, according to the minutes of the committee meeting published by the Bank today.

It was first time that Mr King has been outvoted since he replaced Eddie George as govenor in July 2003.

City economists, who have been divided about the Bank's long-term rate intentions, immediately noted what a close call the decision was.

Howard Archer, chief economist at Global Insight, said: "The fact that there was only a 5-4 vote in favour of cutting interest rates in August and the overall tone of the minutes undoubtedly reinforces the message from the August Quarterly Inflation Report that not only is the Bank of England in no hurry to cut rates again, but that it is possible that August's reduction could turn out to be the only cut in this cycle.

But Mr Archer added: "However, we remain more pessimistic than the Bank of England about growth prospects, and believe that further below-trend expansion and a modestly softening labour market will increasingly alleviate medium-term inflationary pressures.

"We still believe that another interest rate cut could yet occur before the end of this year, and we also continue to expect that interest rates will fall to a low of 4 per cent by next spring."

But John Butler, chief UK economist at HSBC, says the minutes indicate rates are unlikely to be cut in the near term.

"This is a key moment in the MPC’s history and illustrates a major division not only in terms of the inflation outlook but also on tactics. The cutters are arguing one move should be enough, while the no movers are unclear whether a cut will need to be reversed at some future date.

"At a minimum this division suggests rates are unlikely to be cut again in the near term, unless GDP growth disappoints, and given the Bank is expecting GDP growth of around 0.4 per cent in Q3, the room for disappointment seems slim."

Opponents of a further rate cut believe that the Bank should wait for further data amid a lack of economic clarity, with manufacturing in recession but services improving well.

In the minutes released today, the members of the MPC who voted to keep rates on hold argued that while output growth had slowed and the labour market had eased a little, the economy was still operating close to full capacity.

"Given the difficulty in explaining a reversal of a decision soon after a turning point, should that prove necessary in the light of future data, it was advisable to accumulate a little more evidence than usual before changing interest rates," the hawks on the MPC said.

However, the prevailing view among the MPC was that a cut was necessary, because of "subdued" output growth, slowing household spending and lower business investment growth.

"It seemed likely that the combined effect of high levels of household debt and the lagged impact of past interest rate increases had accounted for some of the unexpectedly sharp slowdown in consumer spending through 2004 and into the first quarter of 2005," the minutes note.

Meanwhile, economic data released today suggests the economy is continuing to slow with unemployment rising for the sixth successive month in July - the longest stretch of increases in nearly 13 years - while earnings growth remains subdued.

Official figures showed that the number of people claiming job-seeking benefits increased by 2,800 to 866,000 in June. Measured by the internationally recognised International Labour Organisation, the number of unemployed in Britain rose by 27,000 to 1.423 million in the three months to June.

Some economists argue that although unemployment is only rising very marginally, the upward trend could have a damaging psychological effect on consumers, increasing the risk that spending could remain subdued for some time to come.

In addition, the muted annual earnings growth in June – at 4.2 per cent – could ease concerns at the Bank about the inflation outlook following the unexpectedly sharp rise in consumer price inflation in July.

The rate is below the 4.5 per cent level considered consistent with the Bank's 2.0 per cent inflation target.

Wage growth in the public sector was 5.6 per cent, including bonuses, unchanged on the month, while the private sector saw wages grow by 3.8 per cent, also unchanged.

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