The Bank of England's Monetary Policy Committee voted 8-1 to cut interest rates by 50 basis points to a record low of 1.5 percent this month, with arch-dove David Blanchflower calling for a reduction of 100 basis points.
Minutes of the Jan. 7-8 meeting published on Wednesday showed policymakers discussed leaving interest rates unchanged at 2 percent to give them time to assess the outlook during their February forecasting round, but did not want to surprise markets or undermine confidence
"The MPC seems more cautious this time around, which may call into question the outcome in February," said Philip Shaw, economist at Investec. "We still expect a 50 basis point cut next month but with some risk the MPC could pass."
Most analysts expect the BoE to cut borrowing costs to just 1 percent next month when it presents its quarterly Inflation Report and the central bank's governor, Mervyn King, said late on Tuesday that policymakers may even need to think about using more than just interest rates to boost the economy.
Still, policymakers argued at their January meeting that there was already substantial stimulus in train — huge interest rate cuts; the October bank bailout; tax cuts and higher government spending; the big fall in sterling and commodity prices, and the decline in consumer price inflation.
"Collectively these amounted to a very significant stimulus to demand, the effects from which were only beginning to work through the economy."
The MPC, however, noted that the implications of the fall in sterling, which hit a 7-1/2 year low against the dollar on Tuesday, would depend on the factors behind it.
"If there were indications — perhaps from lower gilt prices, for example — that a weakening exchange rate reflected a loss of credibility in UK economic policy, then that would be bad news for the medium-term outlook," the minutes said.
"However, to the extent that the falls in the exchange rate were a response to real economic developments, then they should act as a shock absorber, increasing growth by boosting the relative demand for UK output."
They said the prospects for sterling and UK exports would depend in part on the success of economic policies being pursued overseas.
