LONDON: The Bank of England moved closer to raising interest rates on Wednesday, as minutes showed that three policymakers voted earlier this month to hike borrowing costs due to concerns over high inflation.
Three members of the nine-strong Monetary Policy Committee (MPC) called for the central bank to lift rates from a record low level, according to minutes from the February meeting. That compared with two rate hawks in January.
However, the MPC voted 6-3 to keep the central bank's key interest rate at just 0.50 percent, where it has stood since March 2009, as it balanced inflation concerns with worries over the fragile economic recovery.
Economists seized on the news as evidence that the Bank of England had jumped one step closer towards lifting borrowing costs.
"Our overall sense from the minutes is that the MPC is inching its way towards starting to raise rates, but a move remains dependent on the strength of the incoming data and could yet be derailed by bad news," said Barclays Capital analyst Simon Hayes.
"We continue to forecast the first rate rise to be in May, but there are risks in both directions.
Annual inflation surged to a two-year peak at 4.0 percent in January double the BoE's target level on the back of surging oil prices and food bills, recent data showed.
At the February meeting, policymaker Martin Weale called again for an increase in the rate to 0.75 percent, and was joined by his colleague Spencer Dale. Andrew Sentance voted for a larger hike in the rate to 1.0 percent.
At the previous gathering in January, just Sentance and Weale had called for a quarter-point hike.
"The hawkish tone of February's UK MPC minutes suggests that the chances of a near-term interest rate are rising higher than previously thought," said Capital Economics analyst Vicky Redwood.
"Indeed, we would now put the chances of a May hike at pretty much 50-50.
"However, the minutes made it clear that the decision will depend on how the economic data pan out over the next few weeks. So if the recovery struggles as we expect a near-term tightening might yet be avoided."
On the foreign exchange market, the British pound briefly rallied against the dollar, as dealers digested the increased likelihood of a rate hike in the coming months.
"For three members, the case for removing some monetary stimulus at this meeting was compelling," read the minutes from the February gathering.
"For those members, the upside risks to the medium-term inflation outlook from global inflationary pressures and the possibility that inflation expectations would move up outweighed the downside risks to inflation associated with uncertainty about the strength of the recovery."
The BoE had forecast last week that the economy, which suffered a shock contraction in the final three months of last year, would likely avoid a double-dip recession.
The central bank had also predicted annual inflation would hold "well above" its target of 2.0 percent this year, and would fluctuate between 4.0 and 5.0 percent in the near term.
This Friday, the Office for National Statistics will publish the second estimate of British economic growth for the fourth quarter. According to the first estimate, gross domestic product shrank 0.5 percent in the three months to December.
That was the first drop in output since the third quarter of 2009 and stoked fears that Britain could be heading for a "double dip" recession as deep spending cuts introduced by the Conservative-Liberal Democrat coalition bite.
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