Paul Niven, head of strategy at F&C Asset Management commented: "The MPC minutes came as something of a surprise to the market as the vote, at 5:4 for a rate cut, was tighter than expected. Consensus was for an 8-1 vote but in the end Richard Lambert was the only member to change his mind from July's 5-4 vote against changing rates.
"Importantly, Mervyn King, governor of the Bank of England and chair of the MPC, voted against a rate cut. This represents the first time that there has been a change in policy where the governor has been in the minority and illustrates how controversial the decision turned out to be.
"The MPC minutes further reduce the chance of a near term reduction in rates and, indeed, the risk is that the market moves to discount a hike in rates. This will be the case if UK and global data flow continue to improve. The market has already moved from pricing in three rate cuts from the peak just a couple of months ago to now pricing in flat rates (at 4.5 per cent) into 2006.
"Increasingly, it appears that the UK rate cut was anomalous, particularly in light of last week's inflation report and recent inflation data pushing through target levels.
"Further rate cuts appear off the agenda in the near term. The outlook for interest rates will clearly remain data dependant but, with the Bank predicting a 2006 recovery in growth and inflation rates, further easing in policy now appears some way off."
