The Bank of England should keep rates on hold to quell persistent inflationary pressures, despite mounting evidence that an economic slowdown is taking hold, The Times MPC said yesterday.

The majority of the independent panel of economic and financial experts, faced with concerns over rising inflation and a slowing economy, felt that rates should stay at 5.25 per cent this month to keep inflation under control. However, three members said that an immediate quarter-point cut was needed to bolster the economy.

Rupert Pennant-Rea, a former deputy governor of the Bank of England, said the Bank's Monetary Policy Committee should “keep stressing the imperative to contain inflation” and not cut rates this month. This was echoed by Sir Steve Robson, former Second Permanent Secretary at the Treasury, who said: “Evident inflationary pressures make this the wrong time to cut rates.”

Geoffrey Dicks, UK economist for RBS Global Banking, said it was imperative that the Bank cut rates to 5 per cent as quickly as possible to avoid deeper cuts in the future.

The two doves on the committee also agreed that rates should be cut. Sushil Wadhwani, a former member of the Bank's MPC, and Anatole Kaletsky, chief economic commentator of The Times, said that the MPC should take pre-emptive action.

Mr Kaletsky said: “Since monetary policy operates with long lags and must be forward-looking, the recent high inflation figures should not preclude a cut in rates.”

New figures showed that prices in the British service sector rose to a record high in February. Activity in the sector, which ranges from airlines to restaurants and banks, rose for a third consecutive month from 52.5 in January to a five-month high of 54 in February, according to the Chartered Institute of Purchasing and Supply/NTC activity index published yesterday. The balance of purchasing managers reporting price rises increased from 63.8 in January to 65.6 last month - the highest since 1999.

The Average Prices Charged Index rose from 55.3 at the beginning of the year to a 12-year high of 56.8 last month. The British Retail Consortium said that food price inflation rose to 4.6 per cent in February, compared with 3.9 per cent the month before.

Vicky Redwood, of Capital Economics, said the CPI's figures supported the case for the MPC to be cautious about how quickly it cut interest rates.

However, the British Chambers of Commerce (BCC) said that the Bank should cut this month. David Kern, economic adviser to the BCC, said: “Delaying would be a mistake. British business has so far remained remarkably resilient in the face of worsening threats. Unless urgent action is taken to alleviate the credit crunch, we will face growing risks that confidence will crumble.”

Despite the conditions, the company that operates the Frankie & Benny's and Garfunkel's restaurant chains delivered a shot in the arm to its sector yesterday after reporting an upturn in trading since the new year. The Restaurant Group (TRG), which also owns the Chiquito and Blubeckers brands, said that like-for-like sales in the first nine weeks of the year had risen by 4 per cent, up from only 1 per cent in the last quarter of 2007.

Andrew Page, the chief executive, said that TRG had demonstrated “a considerable level of resilience in the face of a slowing UK economy and a tighter consumer market”. While TRG was not “completely impervious to these economic factors”, he believed that its low prices and its avoidance of the high street in favour of leisure parks and airport and railway concessions would allow it to ride any deterioration in consumer spending.

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