The Bank of England's Monetary Policy Committee (MPC) voted seven to two to keep interest rates at 5.25% earlier this month as inflation risks escalate.
In the minutes of its 5 and 6 March meeting, the BoE explained the balance of demand and inflation risks had “not changed sufficiently” to merit a rate change.
The MPC cut rates in February by 25 basis points to 5.25% to help ease economic fears.
Seven members of the committee, including Governor Mervyn King, believed back-to-back reductions could lead observers to think the MPC was focusing on downside risks to demand at the expense of the medium-term inflation.
“That in turn could lead to an exaggerated response of the market yield curve to a rate reduction,” the minutes read.
However, John Gieve and David Blanchflower voted for an immediate 25 basis points cut, citing increased downside risk to UK growth.
Sterling has dropped against the euro and dollar on expectations of an imminent cut to interest rates.
The pound fell below $2 and to €1.26 following release of the minutes.
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