Four of the Bank of England's nine-strong Monetary Policy Committee voted against keeping interest rates steady this month, preferring a 25 basis points hike, minutes to their October 8/9th meeting showed today.
The shock news of the first votes to raise rates since July 2002 immediately pushed gilt and interest rate futures markets down sharply as dealers bet a hike by December was a certainty.
The pound surged by nearly half a cent against the dollar and a quarter of a penny against the euro but analysts, who had predicted rates would not rise until next year, were not altogether convinced rates would rise by year end.
"This certainly puts the cat among the pigeons. We've had 5-4 votes in the past that have been followed by no change in rates the next month so this does not necessarily point to a rise in November but it certainly raises the possibility," said Mr Peter Dixon, economist at Commerzbank.
Deputy Governor Mr Andrew Large, executive director Mr Paul Tucker and external MPC members Ms Kate Barker and Mr Stephen Nickell, voted in favour of raising the repo rate from its 48-year low of 3.5 per cent to ensure inflation remained on track to hit its 2.5 per cent target.
But they were outvoted by the other members including the Bank Governor Mr Mervyn King, and even his deputy Governor for monetary policy Ms Rachel Lomax, who many had thought would be the first to vote in favour of a rate rise.
PA