Bank of England maintains ménage à trois

The Bank of England's interest rate setters were again stuck in a three-way stand-off over the future of the cost of borrowing.

For the second month running, seven members of the monetary policy committee (MPC) voted to maintain the status quo of interest rates at five per cent, while one member (Tim Besley) voted for an increase of 0.25 per cent to fight off inflation and a further member (David Blanchflower) voted for a cut, minutes from this month's meeting released today reveal.

The Trimurti dispute stems from the impasse the UK economy is stuck in.

On one side the threat of inflation – the Bank's primary pursuit – is high and is traditionally tied back to the two per cent target by interest rises. However, the ogre of recession darkens the horizon and is usually confronted by interest rate cuts.

Amid the financial Aithon and Phlogios tearing the economy limb from limb, the majority of the MPC opted to hold firm – under the assumption recent hikes in fuel, food and energy will not be maintained and inflation will make an Icarian fall.

They take the view inflation will rise further but fall as the economy slows.

The minutes stated: "Most members of the committee judged that the current stance of monetary policy was broadly appropriate and that Bank Rate should be maintained at five per cent this month.

"Inflation was likely to move further above the target in the coming months. The outlook for activity growth had continued to worsen, but some build up in the margin of spare capacity was likely to be necessary to ensure that inflation returned to the target in the medium term."

The minutes showed the MPC saw cutting rates would help to "ameliorate the worst of the downturn in activity", but would seen out the message the rate setters were more bothered by the economy than inflation.

"In that case, the risk of elevated inflation persisting, and perhaps rising further, would increase," the minutes revealed.

However, the body warned a rate rise "might adversely affect business and consumer confidence".

Jonathan Loynes, chief European economist at Capital Economics, said the minutes show interest rate debate "remains finely balanced for now", but there is little here to suggest a cut will come in the near future.

"Nonetheless, with inflation close to a peak and the economy heading towards recession, we still think rates could be falling by year-end and will eventually drop much further than the markets expect."