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LONDON (Thomson Financial) - The prospect of another interest rate hike from the Bank of England in the next couple of months is likely to diminish further with the news that the rate-setting body voted unanimously to keep its benchmark interest rate at 5.75 pct unchanged at its meeting earlier this month.

Minutes to the Aug 2 meeting show that the nine-member panel did not even discuss the need for a back-to-back rate rise to 6.00 pct, and that most members emphasised that they had no firm view on whether rates actually need to rise further.

Though the publication of the minutes has been largely overtaken by yesterday's news that the annual CPI inflation rate fell below target in July to 1.9 pct, it does suggest that the appetite for further tightening in policy may be waning.

The BoE's Monetary Policy Committee is tasked with setting interest rates to achieve an annual CPI inflation rate of 2.0 pct on a two-year horizon. Over the last year it has raised its Bank Rate a quarter point on five occasions, taking borrowing costs to a six and a half year high.

The minutes suggest that there is uncertainty on the Committee about how the risks to inflation and output from a variety of sources will materialise over the months ahead.

"There was a range of views about the risks to inflation and growth," the MPC said.

"The future path of Bank Rate would depend on the evidence in the months ahead about whether and how the risks were crystallising," it added.

The MPC said the near-term outlook for inflation is "clouded with uncertainty" even though CPI inflation was returning back to target in June. The MPC did not have July's inflation data to hand at its meeting.

It said it was particularly uncertain about the path of household goods, food and utility prices, adding that there is a risk that inflation expectations would be "particularly sensitive" to further adverse cost shocks, given the experience of rising inflation last winter and the fact that other measures of inflation such as RPI and RPI-X remained high.

"Although there were still more effects to come from the recent rise in oil prices, some of the earlier rises in energy prices had now largely fed through to retail prices," it said.

"So it was possible that there would be a somewhat clearer view of the relationship between the gap between demand and potential supply and the outlook for inflation than there had been in the recent past," it added.

The MPC identified other risks to inflation and growth, not least the turmoil in the financial markets, which it said posed a risk to their projections, rather than a factor directly influencing their central view.

In last week's quarterly Inflation Report, the MPC indicated that inflation would drop to, and remain at, target in two years time if rates rise once more.

The minutes showed that the Committee wanted to monitor closely the data on both the price and quantity of credit over the coming period to assess the risk.

Elsewhere, the MPC said it is "too early" to be confident if the signs of softening in UK consumption indicators has been a reaction to previous rate increases or reflected volatility, partly in light of the terrible summer weather.

However, the MPC did concede that there are signs of a softening in the housing market though the outlook for business investment was uncertain, with surveys suggesting robust intentions despite a softening in the official data.

On growth, the MPC said second quarter UK GDP growth is likely to be revised up from the initial 0.8 pct estimate.

"The key issue was by how much growth would slow, given past increases in Bank Rate, and when and whether that would be sufficient to keep inflation close to the target, since it was not only the size of the gap between potential supply and demand that mattered, but how that translated into pressure on inflation," the MPC said.

On the labour market, there was a range of views on the MPC about the margin of spare capacity, with some members warning about the upside risks to inflation from pricing pressures at firms.

pan.pylas@thomson.com

pp/cml/tfn-loc

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