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LONDON, Dec 17 (Reuters) - All nine members of the Bank of England Monetary Policy Committee voted for this month's 1 percentage point cut in interest rates and discussed whether an even bigger reduction might be needed.
Minutes of the MPC's Dec. 3 and 4 meeting, published on Wednesday, showed policymakers did not even think of lowering rates by less than 100 basis points, so worried were they by the downside risks facing the economy.
They did consider a bigger move which would have taken official rates below 2 percent for the first time since the BoE was set up more than 300 years ago but decided against it for fear of surprising markets that had not priced in such a move.
"There was a risk that going further could cause an excessive fall in the exchange rate. There was also a risk that an unexpectedly large cut could undermine confidence in the economy more widely," the minutes said.
Gilts rallied and the pound fell to a new low against the euro after the minutes, which, along with news that the number of people claiming jobless benefit surged to over 1 million last month, reinforced expectations of further rate cuts to come.
"It's abundantly clear the MPC feels the stance of policy is still out of kilter with economic prospects," said Philip Shaw, economist at Investec.
"We certainly think that another 50 basis points cut is due at the next meeting and our central case for interest rates remains they will dip below 1 percent in Q2."
The U.S. Federal Reserve on Tuesday slashed its key rate to between 0 and 0.25 percent, lower even than in the Great Depression.
The MPC appeared to welcome the sharp fall in sterling over recent weeks, noting that it should act to support the economy through boosting export growth, just as the fall in the oil price would boost consumer spending power.
The MPC said the fiscal expansion announced in last month's pre-budget report should help support the economy but would have little significant impact on inflation beyond the short-term volatility induced by a cut in sales tax.
It also noted the importance of getting banks lending again to the economic outlook but said interest rates alone would not be enough to tackle credit constraints.
"Further measures to underpin lending growth would be needed, building on the government's package announced in October to recapitalise and guarantee funding to the banks," the minutes said. (Reporting by Sumeet Desai and Fiona Shaikh, editing by Mike Peacock)