Households have been dealt a blow after the Bank of England warned that the UK's outlook for inflation has "worsened markedly".

The news comes as the Bank's Monetary Policy Committee revealed minutes of its January interest rate meeting, where it voted to keep the cost of borrowing on hold at 5.5%.

The report shows policymakers were concerned that rushing in to cut rates would signal they were more worried about preserving economic growth than keeping inflation under control.

Eight of the nine-strong MPC voted to keep rates as they are, with David Blanchflower the sole voice calling for a reduction to 5.25%.

The minutes show the short-term outlook for inflation has been affected by increases in oil and food costs and the prospect of more energy price hikes.

It indicates that the Bank is unlikely to cut interest rates in the immediate future, despite the Federal Reserve in the US slashing a key rate by 0.75% this week.

Bank Governor Mervyn King has also hinted the UK will not follow America with similar emergency rate cuts to stabilise the stock market.

Mr King said in a speech that inflation will probably continue rising above the Government's 2% target this year.

He told the Institute of Directors in Bristol that he may need to write one or possibly more letters to the Chancellor Alistair Darling - required when inflation reaches more than 1% above target.

Jonathan Loynes, chief European economist at Capital Economics, said the MPC minutes suggest rates will still come down this year as predicted, but that the progress may well be slower than anticipated.

He said: "It is quite clear that UK interest rates are heading lower in 2008, starting in February.

"The pace of monetary loosening will depend in part on conditions in the markets - if recent sharp falls in equity prices continue, the MPC may be forced to cut rates fairly quickly."

He added: "However, it looks likely that the committee will prefer to bring rates down at a relatively measured pace, perhaps one 25 basis points cut per quarter."

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