The Bank of England’s Monetary Policy Committee agreed that a rate rise in February was consistent with a "cautious approach" to setting policy given the uncertainty about household debt levels.

“The usual uncertainty about spending at Christmas was resolved in January when consumer confidence had clearly risen,” said the MPC minutes released today. Consumer confidence measures had rebounded in January, mortgagee refinancing had picked up and surveys of activity in the housing market had remained strong.

Also, house price inflation had not slowed as much in December as had been expected by the committee.

The committee said the repro rate increase last November had so far had little effect on confidence in the housing market. But the Bank’s contacts in the housing market had reported that further rate increases could cool demand, and they expected increases in house prices in the first half of 2004 to moderate compared with 2003.

The committee said future inflationary pressures were likely to be generated as global and domestic economies improved and they decided that a further rate rise was needed to ensure inflation would hit its 2 percent target. "It would be appropriate in the light of prospective demand growth to withdraw some of the stimulus that the monetary policy stance was currently giving the economy," the minutes said.

All members of the committee agreed the 0.25 percent rise, but there were differences in option about the economic indicators, particularly the rise in sterling.