Interest rates to stay 'on hold into 2012' on concerns over recovery

The committee said underlying economic growth was likely to have been "somewhat below" the official figure of 0.5 per cent in the first quarter, while noting that indicators pointed towards "modest" growth in the second quarter and "some softening" in the outlook for the third.

Inflation has been running at more than double the central bank's 2 per cent target for months, but eased unexpectedly in June.

The MPC said higher food and utility prices meant inflation was likely to peak higher and sooner than previously thought, but a majority remained confident that it would fall back to target over the coming year.

The nine members appeared to be entrenched in their positions, with Spencer Dale and Martin Weale again voting to raise interest rates to 0.75 per cent, while Adam Posen continued his one-man campaign to increase the quantitative easing programme by 50 billion to 250bn, in an effort to boost the economy. Economists interpreted the comments as reinforcing the view that rates will stay at 0.5 per cent for the rest of the year.

And while there was no explicit mention of the possibility of more quantitative easing, the minutes stressed that the bank could change monetary policy in either direction, depending on how risks evolved.

Howard Archer, chief UK and European economist at IHS Global Insight, said the minutes were "appreciably more dovish" with the committee increasingly concerned over both the current weakness of the economy and the outlook.

"This fuels belief that interest rates are set to stay down at 0.5 per cent well into 2012," he said. "Meanwhile, further quantitative easing is clearly a possibility if the economy continues to struggle markedly, but there appears to have been no discussion of the case for doing it in the near term."

Chris Williamson, chief economist at Markit, said the markets were not pricing in a hike in interest rates until the final quarter of next year. Some economists think that interest rates will not rise until 2013 or even 2014.

Hannah Reeve, economist at the Centre for Economics and Business Research, said that with the eurozone "on the brink of a potential meltdown" and the possibility of another recession in the western economies, tightening monetary policy "could prove a major policy error".She added: "A sharp weakening in the UK economic outlook could warrant further quantitative easing - we may actually see a further loosening in monetary policy before interest rates start rising again."