July 20 (Bloomberg) -- A growing minority of Bank of England policy makers voted to lower interest rates at their last meeting, reinforcing expectations the central bank may cut borrowing costs as soon as next month to boost economic growth.

The Bank of England's rate-setting committee voted 5-4 on July 7 to leave its benchmark interest rate unchanged at 4.75 percent, according to minutes released today in London. At its previous meeting, the vote was 7-2.

Investors increased bets that the central bank will lower borrowing costs as soon as August after the report. The U.K. economy was outpaced by the dozen nations sharing the euro for the first time in more than four years in the first quarter as consumer spending, the engine of 51 quarters of expansion, slowed.

``August is pretty much a certainty and it's an open question as to whether we get one more before the end of the year,'' said Ross Walker, an economist at Royal Bank of Scotland Group Plc.

Chief Economist Charles Bean, Kate Barker, Stephen Nickell and new Monetary Policy Committee member David Walton argued in favor of a quarter-point reduction in rates in the July 6-7 meeting. Governor Mervyn King led the majority in favor of holding the rate unchanged for an 11th month.

The pound slipped after the minutes were released to $1.7394 as of 11:06 a.m., from around $1.7400 before the announcement. The implied rate on the three-month contract maturing in December dropped today to 4.27 percent from 4.30 percent in London yesterday, below this year's high of 5.21 percent set on March 2.

2003 Divisions

Today's minutes revealed the rate-setting committee at its most divided since its May 2003 meeting, when all four of the MPC's externally appointed members advocated a rate cut, pitching them against a majority of five led by then-governor Edward George and King, who was his deputy at the time. The bank lowered rates in July 2003, which was the last time it reduced borrowing costs.

Since then, there have been five increases in the repurchase rate, leaving it at the highest among the Group of Seven Industrialized nations.

Lobby groups such as the Confederation of British Industry and the British Retail Consortium have been ratcheting up the pressure on the central bank to lower borrowing costs amid concerns the U.K. $1.9 trillion economy needs shoring up.

``Early action would reduce the risk that greater changes in the policy rate would be needed at some point in the future,'' according to the minority view on the committee, the minutes showed. ``High levels of household debt had increased the risk that the consumer slowdown could be protracted.''

Wait-And-See

Chief Economist Bean first departed from the majority in seeking lower rates in last month's meeting, when he advocated a cut of a quarter point. He was joined at that time by Marian Bell, who was voting in her last meeting as an MPC member. Walton, her replacement, is a former Goldman Sachs economist.

Economic growth slowed to 0.4 percent in the first quarter, lower than previously estimated and slower than the 0.6 percent pace in the three months through December. Household spending grew at the slowest rate since the fourth quarter of 2000.

For the majority of the MPC it remained too soon to draw any firm conclusions on the extent of the household spending slowdown. Given the bank is scheduled to release its quarterly growth and inflation projections next month, there was good reason to hold off any decision on shifting the central bank's rate until later, the minutes recorded.

``It was unclear how deep and persistent the consumer slowdown would prove to be,'' according to the majority view in the minutes of the meeting released in London today. ``There was no indication that economic growth was set to weaken materially in the near term, either in the United Kingdom or in its major trading partners.''

Inflation Pressure

The euro region economy grew 0.5 percent in the first quarter, more than twice the pace in the previous three months. In the U.S., where investors are awaiting Congressional testimony from Federal Reserve Chairman Alan Greenspan today, the economy expanded a comparable 0.9 percent in the first quarter, about the same pace as in the prior three quarters.

The majority of MPC members also believed that ``the significant decline'' in short-term interest rates since May's Inflation Report should ``help to support investment and consumer spending.''

Among other arguments in favor of leaving the rate on hold was the increase in the oil price, which while being a potential drag on growth, was also ``likely to exert upward pressure on the CPI inflation rate.''

The majority considered that economic growth is ``stabilizing'' and that there was no great risk in waiting for more evidence before deciding to change the bank's interest rate.

The MPC was in session on July 7 as news spread of the attacks that killed 56 people in London. The minutes recorded that the decision in July was reached ``solely on economic merits'' with no member of the MPC arguing it should be affected by the attacks.

To contact the reporter on this story: Sam Fleming in London at sfleming5@bloomberg.net

Last Updated: July 20, 2005 07:38 EDT