LONDON (AFP) - Bank of England policymakers were split three ways when they left interest rates unchanged earlier this month, reflecting the dilemma they face in controlling soaring inflation whilst boosting growth.

The BoE's nine-member monetary policy committee (MPC) voted 7-2 to leave borrowing costs at 5.00 percent on July 10, according to the minutes of the latest meeting released Wednesday.

Policymaker David Blanchflower voted for a quarter-point cut while Tim Besley urged the BoE to lift borrowing costs to 5.25 percent.

"The three-way split in the MPC's voting in July encapsulates the predicament that the Bank of England is in over a deepening economic slowdown yet elevated and rising inflation," said Global Insight analyst Howard Archer.

The BoE's main task is to keep 12-month inflation close to a 2.0 percent target but it jumped to a 16-year high point of 3.8 percent in June, driven by soaring food and fuel prices.

"Given that inflation seems set to near 5.0 percent later this year and is likely to still be above 4.0 percent at the end of 2008, the Bank of England will probably be reluctant to cut interest rates before 2009 unless the economy really falls off a cliff over the coming weeks," Archer said.

The MPC left its key short-term lending rate unchanged despite the threat of high inflation because of sliding economic growth and a housing market downturn in Britain.

"For all members of the committee, the decision was a difficult one," read the minutes from the meeting.

"But all members agreed that ... the path of inflation in the near term would be higher and the slowdown in activity more pronounced" than previously thought.

June inflation hit the highest level since May 1992 and held above target for the eighth month in a row.

Britain's economy, meanwhile, stumbled badly during the first three months of 2008, recording the lowest quarterly expansion for three years amid the global credit crunch and a slowing property market.

Gross domestic product (GDP) expanded by just 0.3 percent in the first quarter of 2008 compared with the final three months of 2007.

On Friday, the market will digest the initial estimate for Britain's economic growth during the second quarter.

"The severity of the economy slowdown over the next few months is largely beyond the MPC's control," Capital Economics analyst Vicky Redwood said.

"But the longer rates take to fall, the deeper and more prolonged that slowdown will be -- eventually necessitating much sharper cuts in interest rates than the markets are currently discounting."

The BoE's last interest rate move had been in April when it cut borrowing costs from 5.25 percent. The European Central Bank recently raised lending rates by a quarter-point to a seven-year high of 4.25 percent in a move aimed at fighting record eurozone inflation.

"The case for a similar move to the ECB to bolster the committee's credibility may be a compelling one to some MPC members," said Investec economist Philip Shaw.

"But the UK economy is in a more precarious state than most eurozone countries and Britain is more sensitive to changes in short-term rates than its Continental counterparts.

"Were the MPC to bite the bullet and push rates up, the risk of an abrupt fall in output would be opened up and with it the prospect of the MPC being forced to reverse the move aggressively."

In June, the US Federal Reserve kept its main interest rate at 2.0 percent, saying the likelihood of a sharp economic downturn had diminished while inflation risks had increased in the United States.

The world's major economies are currently facing high inflation levels that have largely been fuelled by the high cost of food and oil.

Bank of England website

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