Minutes of the May MPC meeting released yesterday revealed that the majority in favour of leaving the cost of loans unchanged had increased compared with April. One member, DeAnne Julius, actually voted in favour of a cut in interest rates, while only one, Willem Buiter, was still voting for an increase.
By last week, however, enough members had switched for a majority to favour a quarter point rise in interest rates. Money markets were awash with speculation over who had voted which way in the June meeting.
The Prime Minister, Tony Blair, defended last week's interest rate increase as "absolutely necessary", and the Chancellor of the Exchequer, Gordon Brown also defended the MPC. "It is a system which is credible and brings greater credibility to monetary policy," he said.
But the surprise news about the May vote left analysts very uncertain about the outlook for interest rates. Few are now prepared to rule out the possibility of a further increase, although the betting in the sterling futures market is that there will not be another.
The financial markets will be sensitive to every nuance in tonight's Mansion House speech by Eddie George, Governor of the Bank of England.
"People are flabbergasted, and feel that anything is possible," said Roger Bootle, chief economist at HSBC Markets.
The minutes identified four distinct views about rates amongst the eight members present at May's MPC meeting: raise now, raise later, wait and see and cut now.
Professor Buiter, in favour of an immediate increase, stressed the inflationary potential of the minimum wage, a fall in sterling and the possibility of bigger rises in share prices than the Bank had assumed in its forecast.
Ms Julius emphasised signs that the economy, including parts of the service sector, was slowing, and policy was tighter than was necessary. However, in a forthcoming article for The Independent to be published this Monday, Ms Julius argues that the economy's shift towards services could mean interest rates will need to move more over the course of a business cycle than in the past.
The "wait and see" group - thought to consist of Eddie George and two other Bank insiders, David Clementi and Ian Plenderleith - pointed out that there had been little new information since April, the decision was finely balanced, and there would be no harm in waiting for clearer signals.
The subtly different "raise later" group warned of the risk of a rapid fall in the pound and added: "The implication of the minimum wage was that future policy would need to be tighter than otherwise."
The puzzled band of MPC-watchers in the City concluded that three things must have tipped the June vote the other way. Sterling had weakened and new figures had shown a leap in average earnings growth. In addition the ninth and final member, John Vickers, had joined the MPC.
The Bank had its defenders. Steven Bell, chief economist at Deutsche Morgan Grenfell, said: "Any sensible economist would be flip-flopping because the evidence has been moving around so much."
But many experts compared the Bank of England's approach unfavourably with the US Federal Reserve.
"The Fed's Open Markets Committee hammers out the differences behind the scenes. You can read the debate in the minutes but it is not exposed in the recorded votes," said Eric Fishwick at Nikko Europe.Reuse content