David Prosser: The Monetary Policy Committee and its incredible balancing act

Outlook Ever since the minutes of the Bank of England's Monetary Policy Committee's June meeting revealed that one member, Andrew Sentance, had voted for a rise in interest rates, there has been anxiety that the cost of borrowing might rise sooner than expected. But while the minutes of the July MPC get-together, published yesterday, reveal that Mr Sentence voted the same way again, the real revelation was that a return to quantitative easing is now a real possibility.

As Mervyn King, the Bank's Governor, has begun to talk in recent weeks about how QE, suspended back in February, might be unwound, the MPC's renewal of the debate about whether to launch another round feels like quite a shock.

Maybe it shouldn't do so. Most of the economic news of the past few weeks has been grim. Setbacks in the US and Europe suggest the global recovery remains sluggish and the Budget – not to reopen the debate about whether the Chancellor is cutting too soon and too much – is not positive for growth. The Bank's chief economist, Spencer Dale, sounds especially downbeat in an interview in The Independent today.

Still, the MPC minutes represent a step-change on recent months, a period in which the committee has been more preoccupied with the persistently higher-than-expected rate of inflation than downside risks to growth.

Where do we go from here? Well, we are due on Friday to get the first indication of UK economic growth in the second quarter of the year, which provides potential for further disappointment. The Bank's next inflation report, due in a few weeks' time, may see some downward adjustments of its growth forecasts. Either or both will add to pressure on the projections to which the Government is working – and thus its promises on deficit reduction.

The problem for the MPC is that against this gloomy backdrop, there is also no shortage of inflationary risk, not least from the forthcoming VAT increase. Its primary mandate is to bring inflation in at as close to 2 per cent as possible – it cannot go looking beyond the short-term forever.

Interest rate rises or more QE, then? The pressure for one course of direction or the other is building steadily. Never mind the tough choices of which George Osborne so often talks – in the 13 years since its creation, the MPC has never had to walk such a tightrope.