Only Deputy Governor Mervyn King voted against the move.

UK interest rates are now at 5%, a 22-year low, and the voting pattern suggests that further cuts could be in the pipeline.

The minutes of the MPC meeting for June suggest that the main reason for the cut in interest rates was the strength of sterling.

"If that strength were to persist, then the likelihood of inflation falling below target would have increased," the minutes said, adding that "there seemed to be no advantage in waiting."

Focus on sterling

The value of the pound sterling fell against the dollar on the belief that interest rates would fall further. Shortly after the minutes were released, sterling dropped to $1.5789, a two-year low. But it is still relatively strong against the euro.

"With sterling remaining firm we see scope for another cut by the end of the third quarter of 1999," said Jeremy Hawkins of the Bank of America.

Many observers had expected the vote to be more finely balanced, with the new member of the MPC, Sushil Wadhwani, who replaced Alan Budd, swinging the majority towards a cut.

Some economists were worried by the Bank's attempt to manipulate the level of sterling.

"The committee are playing Russian roulette as far as I'm concerned. This could end up being a huge banana skin for them," said Neil Parker of the Bank of Scotland.

He worries that if sterling was to weaken too much, the Bank would have to reverse its interest rate cuts.

The UK's soaring trade deficit could also affect the pound. Government figures showed that in the first four months of the year it widened to �9bn, compared to �5.5bn in the same period last year.

Fragile confidence

Some members of the MPC argued that confidence in the economic recovery was still fragile.

There was the 'puzzling' weakness in retail sales, and wage settlements in the private sector continued to fall.

Others pointed out that the drop in UK inflation was sharper than expected.

The target measure of inflation, the retail price index excluding mortgage interest payments, is now at 2.1% - well below the target of 2.5%.

Under the terms of its operation, the MPC is supposed to keep inflation near to the target figure - which means expanding the economy if inflation begins to fall further.

Mervyn King, the one dissenter, argued that the Bank should take a longer term view and wait until it had seen the effects of previous rate cuts on the economy.