The Bank of England came within a whisker of ordering its first rise in interest rates in more than three years earlier this month, it emerged yesterday.
Minutes of the meeting of its Monetary Policy Committee a fortnight ago showed four of the nine members wanted to increase the base rate to 3.75 per cent.
The final and decisive vote was cast by Mervyn King, the Bank's Governor, who belied his reputation as an "inflation hawk" to call for rates to stay unchanged at 3.5 per cent.
The result of the vote, which was far tighter than any had expected, triggered an instant reaction in the financial markets as traders bet the first rate rise would come next month.
Sterling surged almost two cents to a near five-year high against the dollar on expectations the UK will become the first Group of Seven (G7) nation to tighten policy.
The pound rose as high as $1.6915, its highest since 15 December 1998, according to Bloomberg.
The stock market slumped almost 70 points - its worst one-day fall in three months - on fears that an imminent rate increase would stall economic growth.
Bond yields - a bellwether of future rate levels - surged while sterling contracts implied rates at 4 per cent by December and 4.75 per cent by next summer.
Economists at banks across the City rushed to review their forecasts with many opting for November as the most likely month for the first rate rise since February 2000.
Ciaran Barr, the chief UK economist at Deutsche Bank, said: "Certainly the minutes reveal a committee on the brink of raising rates, and we have changed our call to reflect this."
The minutes showed the committee agreed that signs of stronger domestic demand and consumer spending and borrowing meant the choice was only between holding and raising rates.
Andrew Large, a deputy governor, Paul Tucker, the executive director, and Kate Barker and Stephen Nickell, two of the four external members, voted in favour of raising rates.
They said that, against that background, inflation was "clearly" likely to be above target in two years' time. There was no need to wait for the Bank's new forecasts in November, they said.
Some of them added that, given the recent upturn in the US economy, it was now appropriate to remove the "precautionary stimulus" from July's rate cut.
But the majority doubted the balance of risks had changed and warned - echoing comments on Tuesday by the CBI - that a rate rise would "choke off" the improvement in business conditions.
As well as Mr King's vote, analysts were also surprised that Rachel Lomax, the other deputy governor, who voted against July's surprise rate cut, voted for no change this time.
They were joined in the majority by Charles Bean, the Bank's chief economist, and external members Marian Bell and Richard Lambert.
This meant two members with a reputation for cutting rates - Ms Barker and Mr Nickell - voted for an increase, while two "hawks" - Mr King and Ms Lomax - voted against.
This led several analysts to ponder over the personalities. Geoffrey Dicks and Ross Walker at Royal Bank of Scotland, said it would take much for the MPC to "gel" behind an increase.
"As two of the 'form hawks' were with the majority, it would be a brave economist who would argue rates are not going up in November - and we are cowards," they said.