Members of the Bank of England's Monetary Policy Committee (MPC) gave little encouragement to calls for an early interest rate increase as they maintained their six-three split in favour of keeping rates on hold.
In minutes from this month's MPC meeting, the central bank said there was a "significant risk" that inflation could jump to more than 5 per cent. But the rate-setting body also highlighted weakening consumer sentiment and wanted to see whether surprisingly weak economic output at the end of last year would last.
The Bank said that rising oil prices, driven by tension in the Middle East and North Africa, had increased risks for inflation and growth. While business surveys pointed to recovery, consumer spending and sentiment had weakened sharply, it pointed out.
"The uncertainty created by both developments in the oil market and the recent indicators of household spending and confidence meant that there remained merit in waiting to see how those factors evolved," the minutes said. "The balance between the upside and downside risks to the medium-term inflation outlook had probably not shifted significantly over the month."
Andrew Sentance, the MPC's most hawkish member, kept up his call for a 0.5 per cent rate rise, arguing that the prospects for inflation and growth were stronger than forecast in the Bank's February inflation report. The Bank's chief economist, Spencer Dale, and external member Martin Weale voted for a 0.25 percentage point rise as they did last month.
The Bank's Governor, Mervyn King, and five other members voted to keep rates at their record low of 0.5 per cent, where they have stood since March 2009. Once again, Adam Posen was alone in calling for an extra £50bn to be pumped into the economy to support growth. Mr King has argued that boosts to prices such as the rising cost of oil and commodities and January's VAT increase are likely to be one-offs, allowing inflation to ease back. He has also dismissed as "self-defeating" calls for a rate rise to warn workers and bosses against excessive pay settlements.
Sterling weakened after the minutes were published amid reduced expectations of an imminent rate rise. Market forecasts are for a quarter-point increase in May after output figures for the first quarter are published.
Philip Shaw, the chief economist at Investec, said: "It doesn't look as though the MPC is any closer towards deciding to push rates up in the near-term. While a May [increase] is clearly possible, we still tend towards the view that softness in high street activity, in particular, will encourage the MPC to maintain the current stance until August."
The MPC's worries about consumer sentiment will draw attention to today's retail sales figures. Yesterday, Sainsbury's blamed consumer uncertainty for a slowdown in sales growth.
There were differences between members voting to hold rates. Some saw limited risks of higher inflation expectations feeding through to prices, but others thought the risks and the case for a rate rise had strengthened. On Tuesday, figures showed that consumer price inflation surged to 4.4 per cent in February. The Bank's projection is for inflation to peak at 4.5 per cent in the third quarter before falling to its 2 per cent target over 12 months.