LONDON (AFX) - The Bank of England's Monetary Policy Committee voted by 7 to 2 to keep its repo rate unchanged at 4.00 pct on February 7, according to minutes of the meeting released today. The minutes went on to reveal that the dissenting votes came from Christopher Allsop and Sushil Wadwhani, both of whom favoured a 25 basis point rate reduction. The market had expected a unanimous vote. The main argument for leaving rates unchanged was based on the central projection for inflation over the next two years, where RPI-X is seen only slightly below the 2.5 pct official target before rising. "Cutting rates would undesirably stimulate an already buoyant household sector; and with price pressures currently so benign, a rate increase would be premature," the majority said. Other members emphasised the prospect of inflation rising at the two year horizon. "There would be a risk to the effectiveness of policy if the Committee were to cut rates now only to have to increase them quite shortly afterwards even in the absence of news," they said. Yet other members highlighted the upside risks to the inflation outlook. Firstly, from a fall in sterling's exchange rate and secondly from the possibility that consumption would not slow as much as projected, they argued. Another reason for maintaining the Bank's repo rate at 4 pct arose from the possibility that consumption growth will remain strong for too long. "Since consumption growth was not expected to moderate until the second half of the year, cutting interest rates now would stimulate household spending too much in the short run," the minutes said. "A preferable course would be to leave rates unchanged for now, cutting them if necessary later in the year as and when domestic demand growth slowed and when the path of the international economy was clearer," it added. Further, the news that the January RPI-X inflation reading was expected to be 2.6 pct raised the possibility that inflationary pressures might not be as benign as previously thought, the minutes said. "The data would need to be analysed carefully in order to form a judgment on how erratic they were," it added. But there were also arguments to cut interest rates. With central projection for inflation seen below the 2.5 pct target throughout the two-year forecast period, there was a prima facie case for a rate cut, some members pointed out. Second, it remained uncertain if the US economy recovers steadily this year. In addition, there were signs of "somewhat greater financial market fragility - for example, from the Enron fallout, the just-announced Allied Irish Bank losses, and from Japan. Some members also believed that the central projections for output and inflation were too high and that the balance of risks for both was clearly on the downside. Further, the risks to sterling might not even be on the downside and the associated inflationary implications had almost certainly been overestimated, they said. "Moreover, if sterling did fall, there would be time to assess and react to the potential medium-term inflationary implications," they added. On that view, a further modest cut was warranted to meet the inflation target, and there were no good tactical reasons for delay.