"While we acknowledge that inflation remains a potential UK danger, the risks have eased over the past month. The fall in January CPI annual inflation to 2.7% was larger than expected, and there are realistic hopes that CPI inflation would continue to decline steadily over the coming months. The current wage round remains a critical uncertainty. But the evidence so far is relatively benign. Average earnings annual growth has eased slightly in Q4 2006, and remains well below the MPC's danger zone.
"British business is likely to face acute pressures resulting from the cumulative impact of three Bank Rate increases announced since August 2006. A significant slowdown in UK growth is highly likely later in 2007, even if interest rates stay at 5.25%. The new threat of worsening international prospects could exacerbate the downside risks. Against this unsettled background, the MPC must allow time for the measures taken already to work, before rushing to hike rates further."