(RTTNews) - The policymakers of the Bank of England were split three ways for the second straight session in its rate setting meeting held in early August, the latest minutes showed Wednesday.

Seven members of the Monetary Policy Committee voted to hold interest rate at 5%, while two members voted against. Tim Besley, a hawkish member preferred an increase of 25 basis points and arch dove David Blanchflower sought a 25 basis point cut.

Most members of the MPC viewed that the current stance of monetary policy was broadly appropriate and that Bank Rate should be retained at 5% this month. The BoE had maintained its key interest rate at 5% for the fourth month in a row in a widely expected move. The rate-setting session was held on August 6 and 7.

Earlier, the BoE said in its quarterly Inflation Report that inflation is likely to rise further this year and peak around 5% in the coming months, driven by higher prices of domestic energy, food and imports. However, the central bank expects the rate of inflation to fall below the official target of 2% in two years time if the key interest rate remained unchanged at 5%.

Consumer price inflation rose by more than twice the official rate on higher food and energy prices in July. Annual inflation accelerated to 4.4% in July from 3.8% in June.

The minutes stated “But the fall in oil prices, if sustained, would reduce some of the pressure on utility prices in the near term.” According to MPC, the upside risk to inflation in the short term had probably eased a little over the month.

Raymond Van der Putten, an economist at BNP Paribas said in a research note that a rate cut in November should no longer be excluded. More members are expected to join Blanchflower’s camp as commodity prices are falling in the global markets and the economy is forecast to slow faster than currently anticipated by the MPC.

On the economic growth front, the BoE stated in its inflation report the economy would grow just 0.1% on an annual basis in the first quarter of 2009. BoE Governor, Mervyn King said the central projection is for output to be broadly flat over the next year, so that four-quarter growth slows sharply in the near term.

The quarterly economic forecast released by the British Chambers of Commerce, or BCC on August 18 stated that there is a distinct possibility of a technical recession in the UK. The forecast highlighted a significant worsening in economic prospects.

According to the Industrial Trends Survey conducted by the Confederation of British Industry, or CBI the balance of manufacturers expecting their output volume to decline in coming quarter stood at minus 13%, the lowest since December 2001. At the same time, the balance of manufacturers forecasting the price of manufactured goods to increase was 31%, slightly down from the 18-year high registered in July.

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