Bank of England's Forbes votes for rate hike, others may follow soon

By William Schomberg and Andy Bruce

LONDON (Reuters) - A Bank of England policymaker unexpectedly voted to raise interest rates this week and some others felt it would not take much for them to follow suit, the BoE said on Thursday, signalling a potentially bigger split soon.

Kristin Forbes, who is due to leave the British central bank in June, cast the sole vote in favour of increasing Bank Rate to 0.5 percent, representing the first split on the Monetary Policy Committee since July of last year.

The other eight MPC members opted to keep rates at 0.25 percent to help Britain's economy as the country prepares to leave the European Union.

But sterling jumped by a half a percent against the U.S. dollar to hit a two-week high and British government bond prices fell on the news that more MPC members might vote for a rate hike soon.

"It's definitely a shift," Ross Walker, an economist at RBS (LON:RBS) said. "It takes us to a point where there will probably more dissent sooner than expected, unless of course the economy deteriorates more quickly than the Bank set out in February."

Economists taking part in a Reuters poll had predicted that all nine MPC members would vote to keep rates unchanged.

The BoE expects Britain's economy to grow by a relatively strong 2.0 percent this year after withstanding the Brexit shock in 2016, but then to slow due to Brexit uncertainty.

Most economists have predicted that the BoE will leave interest rates unchanged until 2019 at the earliest.

SIGNS OF SQUEEZE

At their meeting this week, its policymakers mostly felt there were signs that consumers were turning more cautious as wage growth slowed and inflation rose, pushed up by the post-referendum fall in the value of the pound.

That majority view suggested the BoE remained in no immediate hurry to emulate the U.S. Federal Reserve which raised interest rates on Wednesday for the third time since the global financial crisis.

"Pay growth had remained subdued, consistent with the Committee's view that some slack remained in the labour market, and there had been some signs that the squeeze in households' real income growth was feeding through into spending, as expected," the Bank said in minutes of the March MPC meeting.

Data published on Wednesday showed annual pay growth slowing to 2.2 percent in the three months to January, heading in the opposite direction to the Bank's forecast of an increase to 3 percent in 2017 as a whole.

However, among the eight-strong majority, "some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted," the minutes said.

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The BoE's nine policymakers voted unanimously to make no changes to its bond-buying stimulus programme, in line with the expectations in the Reuters poll.

The BoE said in February that some of its rate-setters had "moved a little closer" to their limits for tolerating an overshoot of the Bank's inflation target of 2 percent which the BoE said it was likely to hit in the "next month or so."

Forbes, who is due to return to her career as a U.S. academic after leaving the BoE in June, had previously signalled that she was getting uncomfortable with keeping rates on hold.

Thursday's minutes showed she felt measures of domestically generated inflation - and not just price pressure from the slump in the value of sterling - had increased notably and the expected post-referendum economic slowdown had not happened.