March 19 (Bloomberg) -- Bank of England policy makers voted 7-2 to keep the benchmark interest rate at 5.25 percent this month, defeating calls by John Gieve and David Blanchflower for a quarter-point cut to shore up economic growth.

The Monetary Policy Committee, led by Governor Mervyn King, said that a reduction so soon after lowering the rate by a quarter-point in February may signal the bank was focusing on growth at the expense of inflation, minutes of the March 6 decision published today in London showed. The dissenters said that the threat to economic expansion ``argued against delay.''

Inflation accelerated in February to the fastest pace in nine months and unemployment fell to the lowest in three decades. The threat of higher prices and few signs of a slowing economy have made U.K. policy makers more cautious than the U.S. Federal Reserve, which cut the benchmark interest rate yesterday by three quarters of a percentage point.

``The bank doesn't want to see a short-term spike in inflation get ingrained in the system,'' said Dominic White, an economist at ABN Amro Holding NV, who formerly worked at the U.K. Treasury. ``There are concerns about financial markets and the impact on the economy. The bank needs to strike a balance.''

White predicts the U.K. central bank will lower the benchmark rate once more this year to 5 percent.

The Federal Reserve cut its main lending rate to 2.25 percent yesterday as officials tried to prop up the faltering economy and restore faith in the U.S. financial system. Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser voted against the decision.

Fed Statement

``Recent information indicates that the outlook for economic activity has weakened further,'' the Federal Open Market Committee said in a statement.

The Bank of England minutes showed Blanchflower and Gieve, the deputy governor for financial stability, said that prospects for the U.S. economy ``had deteriorated'' while financial markets ``had taken a turn for the worse.'' They argued that there were ``downside'' risks to inflation and growth and that the current interest rate was restrictive.

``For the majority of members, despite some differences in their assessment of the risks, the balances of risks had not changed sufficiently to merit a change in bank rate this month,'' the minutes said.

Gas Prices

Inflation accelerated to 2.5 percent last month from 2.2 percent in January as gas and electricity prices rose, the Office for National Statistics said yesterday. It has exceeded the central bank's 2 percent target for five months.

``Back-to-back reductions might lead observers to think that the committee was focusing on downside risks to demand at the expense of the medium term outlook for inflation,'' the minutes showed the majority as saying. ``That, in turn, could lead to an exaggerated response of the market yield curve to a rate reduction,'' the minutes showed.

The bank predicts economic growth will slow to an annual pace of 1.6 percent in the fourth quarter, matching the weakest pace since 1993. Claims for jobless benefits dropped 2,800 from January to the lowest since June 1975, the statistics office said in London today.

``The bank is concerned about inflation, and the prospect of inflation rising above 3 percent has put some caution in their minds,'' said James Knightley, an economist at ING Financial Markets in London. ``They only cut rates the month before. The prudent course of action would be to wait.''

Economists at Lehman Brothers Holdings Inc. and BNP Paribas SA changed their interest-rate forecasts after the minutes, predicting a quarter-point cut next month instead of May.

``In light of today's MPC minutes, we believe developments since the March meeting are sufficient to prompt a majority on the committee to vote in favor of an April cut,'' Alan Clarke, an economist at BNP, wrote in a note.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

Last Updated: March 19, 2008 07:54 EDT