Queen, cup and quorum conspire to delay interest rate rise

At least one member of the Monetary Policy Committee looks set to vote for a hike in interest rates this week for the first time since the autumn of 2000.

The Bank's rate-setting group meets today and tomorrow against a background of an economy pulling in two very different directions, leaving it with a stark dilemma over what to do. The minutes of last month's meeting showed a group has begun arguing for an immediate rate rise although they do not divulge who was in this hawkish camp.

However, most analysts expect no change – in part due to a bizarre combination of the Jubilee, World Cup drama and an under-strength committee.

On the one hand the surprise downward revision to zero for GDP in the first quarter means the economy has officially shown no growth for six months.

The manufacturing sector is deep in recession, the UK's trade deficit is acting as a drag on the economy and business confidence has fallen back.

In the other corner is a welter of data from the consumer sector that show house prices, mortgage borrowing and applications for new loans all running at rates not seen since the late 1980s.

Halifax, the UK's biggest mortgage lender, said over the bank holiday weekend that house price inflation is running at the highest levels ever recorded. The annual rate of growth is 18.5 per cent, after a 4.2 per cent jump in May alone. That was the biggest monthly increase since Halifax started collecting data in 1983, outstripping the previous record of 4.1 per cent in July 1988, at the height of the Lawson boom.

The surge in house prices has encouraged homeowners to borrow against their paper windfall to fund the biggest spending spree since the 1980s. Public spending is also strong.

"The more hawkish members are beginning to fret about house price inflation," said Ross Walker at Royal Bank of Scotland. "June's meeting could well herald the first vote for a hike since September 2000."

Until the latest set of minutes from their May discussion, the Bank had been consistent in arguing that the rise in house prices was not a reason to hike rates, especially as its rate cuts were aimed at boosting consumer demand.

Against a background of low inflation on the high street and on the factory floor – where prices are rising at about 0.1 per cent a year – the Bank appears keen to see firm signs of a wider economic recovery before tightening policy.

But despite the high-level debate, the MPC could end up making its decision on more parochial grounds, said Ciaran Barr, chief UK economist at Deutsche Bank.

Thursday's interest rate decision will be announced almost exactly 24 hours ahead of the crucial World Cup Match between England and Argentina. "It is difficult to believe the MPC would risk damaging the team's prospects," he said. As well, a post-jubilee hike would look "harsh". The MPC will also be missing one member because Marian Bell does not become a member until July.