Decision makers at the Bank of England were split on the decision to cut the interest rate by 25 basis points to five per cent, minutes for the meeting show.

Six members of the monetary policy committee (MPC) including the governor, Mervyn King, as well as Rachel Lomax, John Gieve, Kate Barker, Charles Bean and Paul Tucker voted in favour of a 0.25 per cent cut.

But three members voted against, with Tim Besley and Andrew Sentence voting to keep the rate steady at 5.25 per cent and David Blanchflower asking for a bigger cut to 4.75 per cent.

A deterioration in the financial markets convinced the majority of members to reduce the base rate in April.

The MPC said banks’ losses had risen in the first half of March and the collapse of Bear Stearns fuelled concerns in the money markets.

Meanwhile, indicators pointed toward stronger growth than expected than at the time of the February inflation report.

The committee also still had concerns over inflation but “recent developments in the UK labour market suggested that any slowdown in demand growth might well be reflected more in slower nominal pay growth than in quantity adjustments”.

The majority believed that a cut was necessary in order to avoid undershooting the inflation target in the short term due to the global downturn.

However, for the two members who voted for no change to the base rate, high inflation was still a risk.

The minutes show the members were concerned that “a premature cut in the bank rate might sustain higher inflation expectations by making it appear that the committee was more focused on offsetting downside news about the housing market, domestic demand or output growth, rather than on hitting the inflation target in the medium term”.