Minutes of the Monetary Policy Committee's June meeting revealed a narrow five-to-four vote against immediate action two weeks ago.
They also reveal the MPC considered again whether there was any case for cutting UK base rates further from their record low of 0.5%, but decided against such a move for now.
Detailing the nine MPC members' views at their June 6 and 7 meeting, the minutes state that "all judged that the balance of risks to medium-term inflation had shifted towards the downside, compared to the May inflation report projections".
The central projection in this report was that annual UK consumer prices index inflation would undershoot the 2% target on a two-year time horizon, even if base rates were to remain at a record low of 0.5% and the scale of a quantitative easing pro-gramme aimed at stimulating activity were to be held at £325 bil- lion. QE is implemented through the purchase of Government and corporate bonds, using central bank reserves.
Yesterday's minutes, which led some economists to conclude the MPC would likely raise the scale of QE at the end of its next meeting on July 5, state: "Most members judged that some further economic stimulus was either warranted immediately or would probably become warranted in order to meet the inflation target."
Bank Governor Sir Mervyn King voted unsuccessfully for an immediate £50bn rise in QE to £375bn.
Detailing the MPC's consideration of whether there were merits in cutting UK base rates further from the 0.5% level at which they have stood since March 2009, a move suggested by the International Monetary Fund, the minutes state: "In March 2009, the committee had judged that a reduction in Bank Rate below 0.5% could have counter-productive consequences, in particular constraining some banks' and building societies' ability to lend.
"Lenders were, in practice, unable to reduce deposit rates below zero. But they had assets – primarily mortgages – with interest payments contractually linked to Bank Rate. Consequently, a reduction of Bank Rate below 0.5% might squeeze some lenders' interest margins to such an extent that they became even less able to extend new credit."
They add: "On the one hand, there was some evidence that the proportion of outstanding mortgages contractually linked to Bank Rate had increased since early 2009, as a number of borrowers' fixed-rate deals had expired and they had moved to paying pre-set rates linked to Bank Rate. On the other hand, since early 2009, retail deposit rates had increased somewhat.
"So it was possible that lenders had greater scope than before to absorb a reduction in Bank Rate by cutting deposit rates without adverse cash-flow consequences. The extent to which this would be possible would depend on whether other funding costs also fell in line with Bank Rate."
Citing members' view that it was possible "the functioning of the money markets would become impaired" by a rate cut, the minutes state: "Overall, the committee judged that, at the present time, a further reduction in Bank Rate would not have any advantages over an expansion of the asset purchase programme, though it would keep the position under review."