Three-way splits on the Bank of England's monetary policy committee are a rarity, writes economics editor Larry Elliott.
This month's was the first in almost seven years and reflects uncertainty at the Bank about the way in which the economy is heading. One member of the MPC, Steve Nickell, has been voting consistently for a cut for the past six months; his view was given support today by the latest batch of government figures showing that the claimant count measure of unemployment rose in April for the 13th time in the last 14 months and that upward pressure on earnings remained weak.
David Walton, on the other hand, is worried that a combination of stronger output growth in the coming months and the big increase in energy prices risks pushing inflation above its 2% target. He thought a quarter-point increase in rates was needed.
The other six members of the committee (one seat is vacant following the departure of Richard Lambert) want to suck it and see. They saw no need to give a boost to the economy, but equally saw no pressing need to tighten policy given the weakness of domestic inflationary pressures.
Markets, though, took their cue from Walton, with the City shortening the odds on an increase in the cost of borrowing over the coming months. Long-term interest rates, which affect the cost of fixed-rate mortgages, rose and the pound was trading up against the dollar at close to $1.90, making life more difficult for exporters.
A three-way split is unlikely to re-occur at next month's meeting, because Nickell has now finished his six-year term and is off to be warden of Nuffield College, Oxford, in the autumn. The debate over the future course of rates, however, is still very much alive. There are already tentative signs that activity in the housing market is levelling off following the recovery over the winter, and the threat of higher interest rates is likely to take the edge off buyer confidence.
Business surveys have been painting a much more upbeat picture of the economic outlook, and should the world economy remain strong the outlook for exporters will remain reasonable, despite the appreciation in the exchange rate of the pound. But talk of an August increase in rates is premature. It would take some strong data over the next few months for the Bank to move, and it is more likely the economy will fail to live up to the City's expectations.
