Bank voted 7-2 to hold interest rates

The Bank of England's monetary policy committee voted 7-2 to leave interest rates unchanged in April, minutes showed today.

Marian Bell and Christopher Allsopp voted for a cut in rates, arguing that the world economy had been weaker than expected and that economic prospects had deteriorated.

But for the majority of the MPC, news of economic weakness were ambiguous so they preferred to wait for next month's inflation report when the uncertainly from war in Iraq has lifted.

"It looked likely that at the moment that the war in Iraq would be over quickly, so that uncertainty from this source would be less next month," the minutes said.

MPC members argued that the weakness of sterling was another reason for keeping interest rates on hold as it could boost inflation both directly and indirectly. A spurt in inflation was also cited, although it was put down to temporary factors such as oil prices.

"It was important not to let inflation expectations drift upwards away from the target," the minutes said. "While there was little sign of this happening at the moment, the expected increase in inflation in the short run, even though it was largely due to transient factors, might affect expectations of inflation further ahead."

Underlying inflation, which excludes mortgage payments, hit 3% in February, well above the Treasury target of 2.5%. The Bank also published a letter from Gordon Brown, the chancellor, to the Bank of England governor, Sir Eddie George, clarifying that he would be required to write an explanatory letter on deviating from the inflation target by more than one percentage point on the day any such data were published.

Interest rates are currently at a 48-year low of 3.75%, but many analysts predict a further cut this year - possibly next month - amid signs of economic weakness that the committee discussed at its April meeting.

"The majority on the MPC were essentially buying time," said John Butler, economist with HSBC. "They were unclear how much weight they should put on current weak survey evidence and that, given the apparent quick resolution of the war, next month would provide a better guide to future activity."

The Bank noted that growth forecasts had been pared back for the US and the eurozone. The International Monetary Fund has trimmed its 2003 growth forecast for the US to 2.2% (from 2.6% last September) amid sharp falls in manufacturing and non-manufacturing last month. Meanwhile the eurozone is expected to grow only 1.1% this year.

Mr Butler was unconvinced that the MPC will cut rates next month.

"We still believe on balance the MPC will not cut in May," he said. "However, longer term (that is next year) we believe the cuts will be more aggressive than the market is currently discounting."