Close call could signal autumn interest rates rise

In the closest vote for more than a year, the Bank of England's interest rate-setting committee decided by five votes to four to leave the cost of borrowing on hold when it met earlier this month, according to the minutes of the meeting released yesterday.

While two of the four "doves" on the committee - DeAnne Julius and Sushil Wadhwani - appeared convinced that there would be no need to tighten policy in the future to keep the lid on inflation, the other three - Sir Eddie George, Christopher Allsopp and Ian Plenderleith - were not so sure.

The minutes suggest that George, Allsopp and Plenderleith might have sided with the "hawks" - Mervyn King, David Clementi, John Vickers and Stephen Nickell - had it not been for tactical considerations.

At a time when financial markets were not expecting a rate rise, they feared a surprise move would risk boosting the pound on the foreign exchanges, to the detriment of hard-pressed exporters.

The obvious implication to draw from the closeness of the vote is that the Bank could well put up interest rates again in the autumn if the markets are better prepared.

Such a move would almost certainly trigger another round of mortgage rate increases and dearer borrowing costs for businesses. Just the thing you don't need when you return from your summer holiday with a big credit card bill to pay off.

However, all is not lost. Since the interest rate meeting on August 2 and 3, nearly all the economic data released has given comfort to the doves rather than the hawks. Although unemployment has continued to tumble, earnings growth has eased, the annual rate of inflation has held steady and figures released this morning showed that high-street sales have been subdued - hardly copper-bottomed evidence that the economy is on the verge of overheating.

Unless we get some major surprises in the domestic data due out between now and the next monetary policy committee meeting in early September, the hawks will find it harder than they did this month to assemble a majority in favour of a rate rise.

If would be foolish, however, to conclude that base rates have definitely peaked at 6%. The big fall in unemployment in July suggests that consumer confidence is likely to remain high and the Bank will remain wary that this continued tightening of the labour market could yet lead to a pick-up in wage inflation.

The agony of not knowing how much it's going to cost to borrow from banks and building societies is likely to go on at least until Christmas.