Rate rise still on cards despite unanimous MPC decision to hold

City analysts held firm to the belief that the Monetary Policy Committee could raise interest rates next month even though minutes published yesterday showed that its nine members had voted unanimously for no change at last month's meeting.

City analysts held firm to the belief that the Monetary Policy Committee could raise interest rates next month even though minutes published yesterday showed that its nine members had voted unanimously for no change at last month's meeting.

Nor did figures reporting weaker than expected sales on the high street in September dent expectations of a further increase in the cost of borrowing.

Most economists pointed to earnings growth above the Bank's 4.5 per cent comfort threshold, revealed by figures published after the last MPC meeting, as the main concern. Pay rises were also highlighted as a danger by the Chancellor in his Mais Lecture earlier this week.

"The MPC will not want to risk headline average earnings coming in above 4.5 per cent for a third successive month without having made another pre-emptive strike," said Adam Law of Barclays Capital.

Economists also expect figures due tomorrow to show the economy expanding by 0.8 per cent in the third quarter, a marked pick-up from earlier in the year.

"Given the economy's soft landing, it will not be long before such growth rates use up what spare capacity there is, putting upwards pressure on prices," said Richard Iley at ABN-Amro.

According to the minutes of the 6-7 October meeting , higher market interest rates, higher fixed mortgage rates and the increase in the pound since the surprise rate rise in September were all reasons for holding the official rate unchanged.

The minutes also addressed the possibility that structural change in the economy meant higher growth would not lead to as much of a rise in inflation as in the past.

This was the conclusion drawn by DeAnne Julius, one of the most prominent MPC doves, in a speech at the University of Birmingham yesterday.

She said: "There is considerable evidence in the UK to suggest that long-term structural changes are bringing effective downward pressures to bear on prices and margins even during times of relatively robust demand." I

Yesterday's figures painted a picture of healthy economic growth. A modest 0.1 per cent rise in retail sales volumes in September left the 3-month growth rate unchanged at 1.3 per cent. The Office for National Statistics said the underlying trend had picked up in recent months. Food sales increased while sales of clothing and household goods declined during September.

Separate figures for bank and building society lending in September showed mortgage lending remained, at £7.9bn, substantially higher than a year earlier, although it dipped from August's level.

The Council of Mortgage Lenders said the housing market had reached a plateau.