Hopes of cheaper mortgages rose yesterday after it emerged that the Bank of England's Monetary Policy Committee seriously considered a quarter-point interest rate cut last month.
The minutes of the MPC's September meeting, published yesterday, showed that members eventually voted eight to one to keep rates at 5.75 per cent, with the leading dove David Blanchflower the only dissenting voice.
But the minutes also revealed that members were sufficiently concerned about the global credit crisis and deteriorating economic growth prospects for Britain's main trading partners to discuss a rate cut in detail. The MPC said a cut could be needed to arrest a sharper slowdown in Britain's economy.
"The committee should not wait for such a slowdown to materialise in the data before acting," the minutes said, noting that a cut could be quickly reversed if fears of a sharp downturn proved groundless.
In the end, MPC members voiced concerns that a cut would have caught the markets by surprise. "There was a danger such action would be misinterpreted as a signal that the outlook for growth and inflation had shifted decisively to the downside," the minutes warned.
Economic data published yesterday supported a cautious stance on interest rate reductions, with unemployment down by 12,800 in September while average earnings grew at 3.7 per cent in the three months to August, from 3.5 per cent.
Economists remain divided over whether there will be an interest rate cut next month.
Philip Shaw, from Investec, said the minutes reinforced his forecast for a quarter-point reduction. He said: "Members seemed concerned over the risks of a sharper-than-desired slowdown in the economy. Indeed, the latest BoE Agents' summary noted a slowing in several areas."
However, while Howard Archer, chief UK and European Economist at Global Insight, said a cut was a "genuine possibility", he noted: "... we remain doubtful that the Bank of England will act that early unless there is a series of weak data releases over the next couple of weeks".