The minutes of the Monetary Policy Committee (MPC) help to reveal the differing thoughts of its nine members on the direction of monetary policy and gives the markets some indication of the likelihood of changes in policy. The inflation figure has been above the government's 2.0 per cent target for some time now and with interest rates at an all-time low of 0.5 per cent, analysts have been expecting rates to go up for a few months. Each time the Committee meet, however, rates seem to be kept on hold. The question is, how much longer is this likely to go on?

Over the past few meetings, the MPC has been divided on the future direction of policy. First one, then two people voted for a rise in interest rates whereas another, Adam Posen, has been voting for an increase in the Bank's asset purchasing facility (quantitative easing). What this has been highlighting are the difficulties facing the MPC in judging the risks to inflation in the future. It has to be remembered that the Bank's remit is to control inflation and as such its policy decisions have to be couched in line with that remit.

The release of the minutes of the MPC's February meeting show a three way split that is getting wider. The main arguments which underly the split are as follows. Those voting to maintain Bank Rate at 0.5 per cent believe that the economic data points to inflation coming back to target in the medium term. They believe that spare capacity in the economy and the fall out of one-off factors such as the rise in value added tax (VAT) and fuel duties will bring prices down as we move towards the end of this year and into next. They are cautious about increasing interest rates too fast too soon because they believe that it could choke off the recovery, which is fragile, and if this happens inflation will undershoot target - something that is as unwanted as it being over target.

Those voting for a rate rise believe that inflationary pressures are building in the economy. Despite the state of the recovery, commodity and food prices have been putting upward pressure on prices and the Bank has been wrong on too many occasions in the recent past about the speed at which it expects inflation to come back to target. If interest rates are not increased then inflationary expectations will rise and this will feed through to wage demands and possibly trigger a wage-price spiral. A clear message needs to be sent to markets and workers that the Bank will not tolerate higher inflation.

The third view is that the recovery is still so weak that a further boost is needed to get the economy going through further quantitative easing. According to this view, the weak recovery means that inflation is likely to fall below target in the medium term and that there is no sign as yet of inflationary expectations rising. The risk of this when balanced against the prospects of lower consumption because of unemployment and public spending cuts is much higher and so a further increase in quantitative easing is warranted.

The debate amongst the Committee was highlighted by a paragraph in the minutes which read:

"There remained a wider than usual range of views among Committee members about the outlook for growth. The Committee continued to judge that relative to the most likely path the risks to growth were skewed to the downside. Taking that skew into account, the Committee’s best collective judgment was that gross domestic product (GDP) growth was about as likely to be above its historical average rate as below it in the medium term. It was likely that some spare capacity would persist throughout the forecast period."

When it came to the decision, six of the Committee, including the Governor, Mervyn King, voted to maintain Bank Rate at 0.5 per cent. One member, Andrew Sentance, voted to increase Bank Rate by 0.5 per cent, two others, Martin Weale and Spencer Dale, voted to increase Bank Rate by 0.25 per cent and Andrew Posen voted to increase the asset purchasing facility by £50 billion.

The next meeting of the MPC will be held on 9th and 10th March.