Bank of England comes closest to raising rates since 2007

LONDON: The Bank of England (BoE) shocked financial market yesterday, saying that three of its policymakers had backed an interest rate hike, the closest it has come to raising rates since 2007, despite signs of a slowdown in Britain’s economy.

The unexpectedly tight 5-3 vote adds questions over monetary policy to uncertainty over Britain’s political outlook since Prime Minister Theresa May failed to win a parliamentary majority in an election last week.

Ian McCafferty and Michael Saunders joined previous rate rise advocate Kristin Forbes in voting to reverse the BoE’s decision last August to cut rates to 0.25 per cent, said the BoE yesterday.

BoE governor Mark Carney and four other members of the Monetary Policy Committee voted to leave rates unchanged.

The sterling jumped almost a cent against the US dollar and 10year British government bond yields rose by eight basis points on the news.

“It’s surprising that three members voted for a hike this time given that there are signs that the period of weaker economic growth is long-lasting,” said Investec economist Philip Shaw.

The BoE said yesterday a jump in inflation last month to 2.9 per cent meant it was likely to exceed three per cent this autumn — higher than its forecast just a few weeks ago and well above its two per cent inflation target.