Bank split three ways on rate direction in July

One Bank of England policymaker wanted to hike rates this month, another wanted a cut but the remaining seven chose to keep borrowing costs steady as both the inflation and growth outlook had worsened.

Minutes of the July 9-10 policy meeting showed on Wednesday arch hawk Timothy Besley wanting an immediate, credibility boosting quarter-point hike to 5.25 percent and dove David Blanchflower arguing a cut was needed to prevent a recession.

That produced the first three way split on the direction of rates since May 2006 and the decision was "a difficult one" for all nine policymakers given inflation was likely to turn out higher and growth lower than the Bank had thought in May.

"Keeping Bank Rate at 5.0 percent when the economy was slowing was arguably already sending a strong signal of the Monetary Policy Committee's commitment to reducing inflation," the minutes said.

"A rate change this month would be a surprise at a time when credit and other financial markets remained fragile, and any change in rates would be better communicated alongside the Bank's August Inflation Report."

Analysts had forecast an 8-1 vote for steady rates this month, with Blanchflower wanting a cut.

Most economists expect interest rates to stay on hold for some time before eventually falling as the economy slows, but the minutes show there is little broad-based support for rate cuts while inflation is so far above the central bank's target.

"Although it could do little to alter the path of inflation in the near-term, the Committee could, by raising Bank Rate this month, send a strong signal that it was focused on inflation and remained determined to bring it back to target in the medium term," the minutes said.

Arguing against a rate rise, however, there had also been downside news on the economy - and hence for inflation.

"An increase in Bank Rate in the current circumstances, when confidence was low and the financial sector fragile, could impart a downward momentum to the economy that risked a significant undershoot of inflation in the medium term," the minutes said.