The Bank of England's Monetary Policy Committee believes the UK housing market has "deteriorated sharply" and further "significant"

The Bank of England's Monetary Policy Committee believes the UK housing market has "deteriorated sharply" and further "significant"

falls in property prices are "probable", minutes of its June 4 and 5 meeting revealed yesterday.

These minutes point to a potential three-way split on the MPC in future.

They show committee arch-dove David Blanchflower pushed unsuccessfully for a quarter-point cut in UK base rates in an eight-to-one vote on June 5 to hold them at 5%, while some other members considered inflationary pressures warranted consideration of whether there should be an immediate rise.

The minutes make it plain the camp which thought about a rate rise, but stopped short of voting for one, is like Blanchflower a minority voice.

Yesterday's minutes support the impression given by Bank of England Governor Mervyn King, in his letter to the Chancellor, Alistair Darling, this week explaining the rise in annual UK consumer prices index inflation to 3.3% in May, that he would prefer not to raise base rates if he can help it.

King did signal to Darling a potential need to raise rates if wage growth accelerated as workers tried to gain compensation for a cut in real incomes as consumer prices rose.

And King said last night, at the Mansion House in London, that "there should be no doubt that the MPC is prepared to take whatever action is needed to return inflation to the 2% target".

But the June MPC minutes, like King's letter this week, highlight the "temporary" nature of the inflationary pressures coming from food and energy prices.

They also cite MPC members' view that Darling's move to raise the personal allowance for basic-rate taxpayers, following a row over the abolition of the 10p tax band, might offset the pressure for bigger wage settlements.

MPC members described 1.4% growth in UK consumer spending in the first quarter, in data from the Office for National Statistics, as "rather puzzling".

They focused instead on more forward-looking survey evidence pointing to a significant slowdown in consumer spending and thus overall economic growth in the second quarter.

The minutes highlight sharp falls in house prices and tumbling mortgage approvals.

They state Nationwide and Halifax's house price indices fell "by around 2.5% in May", and add: "On these measures, house prices had fallen by around 7% since their peak in the second half of 2007 and further significant falls were probable.

"The fall in mortgage approvals for house purchase ... Indicated a rapid slowdown in housing market activity.

"Discussions with contacts in the housing market suggested that the pace of deterioration had quickened, particularly in the past two months, and appeared to have been driven by a significant tightening in the availability of mortgage finance.

"Housing market conditions had deteriorated sharply and the effects of the ongoing tightening in credit conditions were still working through to the real economy."

The minutes note a sharp fall in share prices of some mortgage lenders and large housebuilders.

Detailing the June 5 vote, the minutes state: "Most members concluded that developments this month had meant that the risks to inflation in the medium term had moved further to the upside.

"It was possible that a somewhat greater degree of slack would now be necessary to ensure inflation returned to the target.

"As a result, there was no case for a reduction in Bank Rate this month, although that position could change as information about the path of activity and inflation accumulated in the coming months."

Referring to the MPC hawks, they state: "For some members, the news had been sufficient to consider whether an immediate rise in Bank Rate was warranted."

Detailing why this was not pursued, they add: "An unexpected increase in Bank Rate might be counter-productive by appearing to exaggerate the committee's concerns about the medium-term prospects for inflation."

Referring to Blanchflower, the minutes say: "For one member, the news on short-term inflation developments had been more than outweighed by the prospect of slowing activity growth and its likely impact on medium-term CPI inflation.

"Similarities could be drawn between developments in the United Kingdom and the earlier slowdown in the United States ... The impact of declining house prices on household spending was likely to be greater than embodied in the central projection of the May inflation report.

"Although a recession in the United Kingdom was not the central expectation, there was a small but growing risk of a very negative outcome that would cause inflation to undershoot the target in the medium term."

The MPC has cut base rates by a quarter-point three times since last December, most recently in April.