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UK interests rates remain the same

The Bank of England's Monetary Policy Committee came its closest to voting for a rate rise since 2007 but has kept interest rates the same.

By Jon Francis | Published: 15th June 2017 Business

It's after the central bank unexpectedly said three of its policymakers backed increasing interest rates.

External MPC members Ian McCafferty and Michael Saunders joined existing rate rise advocate Kristin Forbes in calling for a reversal of the BoE's decision last August to cut rates to 0.25 percent.

Bank of England Governor Mark Carney and four other policymakers voted to leave rates unchanged.

Economists polled by Reuters had expected only Forbes - whose term on the MPC expires at the end of the month - to back higher rates, especially given a slowdown in growth in the first three months of 2017.

The central bank said a jump in inflation last month to 2.9 percent meant it was likely to exceed 3 percent this autumn - higher than the BoE forecast just a few weeks ago and well above its 2 percent inflation target.

Moreover, a fall in the pound after Prime Minister Theresa May failed to win a majority in last week's election could push prices yet higher, the central bank said.

Britain's economy slowed sharply in the first quarter of this year as the effect of higher inflation caught up with consumers at a time of sluggish wage growth.

But the central bank said it was unclear how persistent this weakness would be, as consumer confidence remained solid. Moreover, indicators of investment and exports looked upbeat, the BoE said

"The continued growth of employment could suggest that spare capacity is being eroded, lessening the trade-off that the MPC is required to balance and, all else equal, reducing the MPC's tolerance of above-target inflation," the BoE said.

"Looking ahead, key considerations in judging the appropriate stance in monetary policy are the evolution of inflationary pressures, the persistence of weaker consumption and the degree to which it is offset by other components of demand."