The Bank of England's rate-setting panel is divided three ways over how to guide the economy amid persistently high inflation and a slow pace of recovery, according to minutes released Wednesday of the Monetary Policy Committee's last meeting.
With the government preparing the sharpest spending cuts since 1945, MPC member Adam Posen focused on the risk of another economic downturn and its impact on long-term inflation _ he voted to spend another 50 billion pounds ($80 billion) on stimulus.
Andrew Sentance, on the opposite side, worried that inflation could remain stuck at high rates and again advocated lifting the base interest rate from 0.5 percent to 0.75 percent. Both have argued their cases in public.
The other seven members, including Governor Mervyn King, voted for no change.
The record-low base rate has not changed for 19 months, and the stimulus program _ so-called quantitative easing, which effectively creates more money in the financial system _ paused at 200 billion pounds in November.
Consumer price inflation in September was 3.1 percent, stubbornly above the bank's target of 2 percent. Committee members also noted that economic growth in the second half of the year is expected to slow from the strong 1.2 percent pace in the second quarter.
In a speech on Tuesday, King said the MPC members were conscious that continuing high inflation poses the risk of an expectation-fueled increase in prices, but added "there is also a risk _ at least as large" that inflation will fall below the target as temporary factors dissipate.
King said that a range of other indicators _ growth in broad money supply, pay, and the pressure of demand on supply _ are together likely to be a more reliable guide to inflationary pressure looking ahead.
Meanwhile, the government reported that public sector net borrowing in September was 16.2 billion pounds, up 700 million pounds compared to September 2009.
Samuel Tombs, economist at Capital Economics, said borrowing for the first six months of the fiscal year was about 4 billion pounds better than a year ago.
"But September's overshoot casts further doubt on the ability of the government to meet the June budget forecasts, and casts a shadow" over the government's spending plans being announced later Wednesday.
The Council of Mortgage Lenders said Wednesday that lending fell to a 10-year low in September. Lending of 12 billion pounds was 1 percent below August, and the lowest figure for September since 2000, the council said.