One member of the Bank of England’s Monetary Policy Committee voted to raise interest rates in June when it kept interest rates at a record low, a surprise split that hints at an earlier rise in rates.
The pound surged half a cent against the dollar and short sterling futures tumbled as investors reckoned it was no longer safe to assume that official borrowing costs would stay on hold until 2011.
The M.P.C. minutes published on Wednesday showed policymakers thought demand could be stronger than previously thought and were split on the extent to which spare capacity left over after Britain’s deep recession would bear down on inflation.
One council member, Andrew Sentance, voted for rates to rise to 0.75% from their record low of 0.5%, though he backed the M.P.C.’s unanimous vote to keep the stock of quantitative easing purchases steady at £200 billion.
The 7-1 decision was taken well before the Chancellor of the Exchequer George Osborne’s budget on Tuesday, leaving open the question of how the central bank will respond to the most aggressive cutback in public spending in a generation.
Mr. Sentance’s was the first call for a rate increase in Britain since August 2008, and it was the first split decision since November when one policymaker called for more quantitative easing than was ultimately agreed.
Mr. Sentance argued that inflation had proved resilient in the aftermath of Britain’s deep recession, casting doubt on the bank’s prediction that spare capacity would be enough to bring inflation back to target.
Inflation hit a 17-month high of 3.7% in April, and fell only to 3.4 percent in May, remaining well above the central bank’s 2% target.
Other members were happy to leave policy steady, saying that the balance of risks to inflation was not enough to justify a change in policy, especially given the scope of fiscal tightening that could lie ahead.
The BoE met on June 9 and 10, before Mr. Osborne announced a rise in value-added tax in Tuesday’s budget as part of an ambitious package to reduce Britain’s record deficit. The normal nine-member committee was down to eight because a replacement for Kate Barker, who left at the end of May, has yet to be found.
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