LONDON (Reuters UK) - The Bank of England's Monetary Policy Committee voted 8-1 to keep interest rates at 5.0 percent this month, with David Blanchflower calling for a half percentage point cut.
Minutes of the Sept 3-4 meeting published on Wednesday showed that policymakers considered both raising and cutting rates before deciding to preserve the status quo.
Still, details of the vote boosted expectations that the MPC is moving closer toward cutting rates as policymaker Tim Besley did not repeat his call for an increase this month. Markets had expected another three-way split, as in August.
"The MPC now seems to have a slight loosening bias which is likely to have been strengthened by events since the meeting, not least today's news of a rise in unemployment of over 32,000 in August," said Jonathan Loynes of Capital Economics.
The Office for National Statistics reported on Wednesday that the number of Britons claiming unemployment benefits jumped by 32,500 in August, the biggest rise since December 1992. This added to the economic gloom this week as stock markets have tumbled since the Lehman Brothers collapse.
Sterling fell after the minutes and jobs data were released.
The minutes said the MPC had judged that there had been upside and downside news over the month, but the medium-term outlook presented in last month's Inflation Report had not significantly changed.
But policymakers thought it was more than usually important to stress that the MPC would continue to make its judgement each month on the basis of changing evidence.
The MPC reckoned a case could be made for raising rates but judged there was little evidence that medium-term inflation expectations had not become dislodged. It was also mindful that the effect of a surprise rate rise on sterling was not clear as it could lead to a broad reassessment of UK economic prospects.
The fall in sterling had been the main upside news for inflation over the month and the MPC majority judged it would not be appropriate to cut rates, as markets might think it was more focused on economic growth than inflation.
But the MPC also noted that developments in financial markets had raised the likelihood of UK credit conditions remaining tighter for longer than previously expected.
Bank Governor Mervyn King said in a letter to finance minister Alistair Darling on Tuesday that the MPC would keep market developments in mind at its next and subsequent meetings.
