BoE minutes expected to show 8-1 vote to hold rates

The Bank of England building is seen in central London March 20, 2008.

LONDON (Reuters) - Minutes of the Bank of England's May 7-8 policy meeting on Wednesday are expected to show only arch-dove David Blanchflower voted for an interest rate cut this month.

Analysts predict they will show inflation concerns convinced the other 8 members of the Monetary Policy Committee to vote to keep rates steady at 5 percent despite a slowing economy.

Consumer price inflation has been above the central bank's 2 percent target since October and leapt to 3 percent in April, much higher than analysts expected. Although they were not published until last week, policymakers saw the figures ahead of the rate decision.

They also had access to quarterly forecasts, published by the central bank last Wednesday, which show inflation rising close to 4 percent this year even as the economy slows.

"The minutes look set to show an overwhelming majority backing stable rates in May, although we suspect that David Blanchflower will have pushed for a further cut," said Philip Shaw, chief economist at Investec.

Blanchflower has made no secret of his concerns over the economic outlook. He warned last month that Britain could enter recession and house prices could drop by a third unless interest rates were cut more aggressively.

Minutes of last month's meeting revealed a three-way split on the nine-member monetary policy committee. Blanchflower voted to cut rates by 50 basis points, two others voted to leave rates on hold and the remaining 6 voted to cut rates by a quarter-point.

The hawkish forecasts contained in the BoE's quarterly Inflation Report have sparked a sharp shift in interest rate expectations. At the start of the month investors were betting interest rates would be cut at least once more by September. Now investors expect rates to stay on hold until the end of the year.

"The minutes will shed some further light on whether the markets are correct to write off any further cuts in interest rates this year," said Paul Dales at Capital Economics.

(Reporting by Christina Fincher; Editing by Gerrard Raven)