Minutes reveal Bank voted 8:1 in favour of increase in interest rates

Fears that families will be hit by a rise in interest rates in the run -up to Christmas eased yesterday even though it emerged that all but one member of the Monetary Policy Committee voted for an increase this month.

The MPC divided by eight votes to one to raise the cost of borrowing for the first time in almost four years to 3.75 per cent. Marian Bell, one of four external members, wanted to keep it on hold, warning a rate rise would hit growth. Analysts had expected a unanimous vote. More significantly, the minutes did not reveal any debate about the need for a half-point rate rise - something that could have heralded an increase on 4 December. "Unless the signalling process has gone awry, we can relax until next year," Geoffrey Dicks, the chief UK economist at Royal Bank of Scotland, said. "The MPC has never raised rates in December and does not appear set to break that tradition."

But the minutes did little to dispel speculation rates were set to rise, given the Bank's fears of a house price crash unless consumers stopped borrowing at unsustainable levels.

The majority thought a rise was needed as inflation was forecast to be above target and rising at the two-year horizon. They listed a battery of arguments for the increase - evidence of world recovery, sustained growth in consumer spending and house prices, and investment and government expenditure set to strengthen.

"Finally, even after a modest rate increase, monetary policy would still be accommodative," the minutes read. But Ms Bell said the Bank's latest forecasts were too strong.

Recent revisions to official growth figures for the past four years showed the economy's supply capacity was higher than previously thought, meaning demand could be accommodated without triggering inflation. She said forecasts for a recovery in the eurozone were too optimistic, as growth in the 12-nation area looked set to stay below trend for some time.

"Taken together, these points could imply a materially lower projection for inflation at the two-year horizon," she told her eight colleagues. "A rise in rates in 2004 was likely to be warranted to continue meeting the target, but to increase it now was not necessary and would involve some cost in output."