Bank voted 7-2 for steady rates in March

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Deputy Governor John Gieve, who is responsible for financial stability, unexpectedly joined arch-dove David Blanchflower in calling for a pre-emptive quarter percentage-point cut to shore up the economy in the face of a global credit crunch.

"The minutes confirmed an easing psychology from the Monetary Policy Committee and softer than expected labour market figures reopened the case for a cut in rates as early as April," said Audrey Childe Freeman, European economist at CIBC World Markets.

But many economists said the minutes of the Bank's March 5-6 meeting showed the majority of the Monetary Policy Committee members were also worried about inflation, and may prefer to take a more cautious approach and hold off until May.

Markets are pricing in as many as four quarter-point UK rate cuts this year after last weekend's firesale of U.S. investment bank Bear Stearns provoked market panic and prompted the U.S. Federal Reserve to cut its rates by 75 basis points on Tuesday.

Markets had predicted an 8-1 vote at the March Bank meeting and sterling fell against the dollar after the minutes' publication. Weaker than expected average earnings data, released at the same time as the minutes, also fuelled the market moves.

The majority of MPC members were concerned that following a rate cut in February so quickly with another would give the wrong signal to the market - that they were more worried about stumbling economic growth than high inflation.

"Back-to-back reductions might lead observers to think that the Committee was focusing on downside risks to demand at the expense of the medium-term outlook for inflation," the minutes said. "That in turn could lead to an exaggerated response of the market yield curve to a rate reduction."

CREDIT CRUNCH WORSENS

As the credit crisis deepens, Bank policymakers have cancelled regional visits and are staying in London to keep a closer eye on market developments. However, a Bank spokesman denied market rumours that there were any scheduled meetings to discuss a major U.K. bank failure.

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