London: The Bank of England froze interest rates at a record-low 0.25 per cent as expected, but revealed that three policymakers surprisingly called for a hike to counter surging inflation.
The central bank’s monetary policy committee (MPC) unexpectedly voted 5-3 in favour of keeping its key interest rate at a record-low 0.25 per cent, where it has stood since last August.
Thursday’s decision sent the British pound racing higher against the dollar because only one member had previously advocated a rate hike.
“The Bank of England caught traders off-guard on Thursday, turning what was expected to be a rather mundane affair into something far more interesting,” said Oanda analyst Craig Erlam. MPC members Ian McCafferty and Michael Saunders joined Kristin Forbes in voting for an increase to 0.50 per cent, minutes from the meeting showed.
Forbes, who leaves the rate-setting panel at the end of the month, had been the lone voice for a hike in both the previous two meetings. This week’s vote marked the first time that three members have dissented for more than six years.
“The hawkish tone of June’s MPC policy decision and minutes supports our view that rates will rise rather sooner than investors expect,” said economist Scott Bowman at research consultancy Capital Economics.
“Admittedly, the consensus had expected arch-hawk Kristin Forbes to maintain her rate hike call, but the addition of Michael Saunders and Ian McCafferty came as a surprise.”
The pound later ran out of steam because the dollar remains buoyed after the US Federal Reserve lifted interest rates on Wednesday.
The MPC meanwhile forecast inflation would surge further above the central bank’s 2.0 per cent target in the coming months.
“CPI inflation has been pushed above... target by the impact of last year’s sterling depreciation,” the BoE added on Thursday.
“Inflation could rise above 3.0 per cent by the autumn and is likely to remain above the target for an extended period as sterling’s depreciation continues to feed through into the prices of consumer goods and services,” it said. — AFP
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