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Wednesday, 18 October 2006, 08:56 GMT 09:56 UK

Bank divided over interest rates

Mervyn King, Bank of England Governor The Bank of England was split over this month's decision to keep interest rates on hold, with two members voting for an immediate quarter point increase.

Minutes of the Bank's Monetary Policy Committee's October meeting showed that its two newest members, Timothy Besley and Andrew Sentance, wanted the rise.

Analysts said news of the 7-2 split would further fuel expectation that the Bank will raise rates next month.

The Bank is widely expected to increase rates from 4.75% to 5% in November.

It last increased interest rates by one quarter of a percentage point in August, before keeping them on hold in both September and October.

Wage concerns

The minutes of the October meeting further showed that the bulk of seven members that voted in favour of the hold agreed on the arguments for raising rates, but were concerned that such an unexpected hike could wrongly boost market expectations of further moves.

"A 25 basic point interest rate hike in November now looks highly probable," said Global Insight economist Howard Archer.

"There are clearly serious concerns within the MPC that businesses are increasingly looking to raise their prices and that wages could move significantly higher in the 2007 pay rounds."

The Bank of England's governor Mervyn King himself warned earlier this month that inflation remained a concern.




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