LONDON - Two Bank of England policymakers unexpectedly voted to start raising interest rates this month, becoming the first officials to do so in more than three years, minutes of policy discussions showed on Wednesday.
Martin Weale and Ian McCafferty - external members of the BoE's nine-member Monetary Policy Committee - voted to raise British interest rates to 0.75 percent from 0.5 percent, a move that could revive expectations of a majority backing higher rates by the end of the year.
Before the BoE's Aug. 6-7 MPC meeting, most economists polled by Reuters had expected a split vote on rates. But the tone of the BoE's quarterly economic update on Aug. 13 caused a subsequent poll to forecast continued unanimity on keeping rates at a record low.
The BoE cut its wage growth forecast for 2014 in half and said it wanted to see the prospect of sustainable wage growth before it tightened policy - though BoE Governor Mark Carney later added that this did not mean wages had to outpace inflation before rates could go up.
Wednesday's minutes showed that Weale - who backed rate rises in 2011, and opposed the introduction of forward guidance - and McCafferty, believed that falling unemployment suggested that stronger wage growth was in prospect.
"Since monetary policy, too, could be expected to operate only with a lag, it was desirable to anticipate labor market pressures by raising Bank Rate in advance of them," Weale and McCafferty said.
Other members of the MPC thought that there were insufficient inflation pressures for it to be worth taking the risk of raising rates.
Most economists did not expect interest rates to rise before February next year. This view has been reinforced by data showing the first annual fall in wages in five years in the second quarter of 2014, as well as a bigger than expected drop in inflation in July.
But some economists expect the BoE to start to tighten policy sooner.
Although Britain's economy is still slightly smaller than before the financial crisis, the BoE forecasts it will grow by 3.5 percent this year, which would be its fastest rate in a decade.
House prices are also up by 10 percent nationally, prompting Carney to name the property market as the biggest domestic threat to financial stability earlier this year. However, the BoE has since taken measures to restrict mortgage lending, and there are tentative signs that price rises are starting to slow.
(Reporting by David Milliken and Andy Bruce)
((uk.economics@reuters.com; +44 20 7542 5109))
