Bank of England divided over rate policy

The Bank of England shocked financial markets yesterday when it said three of its policymakers voted for an interest rate increase, the closest it has come to raising rates since 2007, despite signs of a slowdown in the UK economy.

The unexpectedly tight 5-3 vote adds questions over monetary policy to uncertainty over the UK’s political outlook since prime minister Theresa May failed to win a parliamentary majority last week. Bank of England policymakers Ian McCafferty and Michael Saunders joined previous rate rise advocate Kristin Forbes in voting to reverse the bank’s decision last August to cut rates to a record low 0.25%, the bank said.

Governor Mark Carney and the four other members of the Monetary Policy Committee voted to leave rates unchanged. Financial markets were pricing in a roughly 50% chance of an interest rate hike by next June. However, many economists said they still saw no rate increase on the horizon possibly for another two years.