Sterling climbs on news that Bank of England rate-setter voted for rate hike

Bank of England rate-setter Andrew Sentance voted for a 0.25% hike at the last MPC meeting two weeks ago, sparking a fresh debate on the direction of the cost of borrowing.

The pound was higher against both the dollar and the euro this morning after it emerged that one member of the Bank of England's rate-setting committee voted to increase interest rates.

Sterling added to earlier gains to trade one cent higher against the dollar at $1.4892 and one cent higher against the euro at €1.2131.

Today’s minutes from the Monetary Policy Committee's (MPC) meeting two weeks ago shows external member Andrew Sentance was the only member to break ranks and vote for an interest rate increase.

The other seven members voted to keep rates at record lows.

Sentance has been publicly calling fro a rate hike since January and two weeks ago told the Sunday Telegraph that inflation has proved far stickier than the Bank of England predicted and the MPC ought to consider lifting rates over coming months

Sentance said: 'The recovery in the economy and the resilience of inflation highlight the issue of how long such an expansionary policy will remain appropriate.'

The minutes say one member – presumably Sentance – believed inflation had proved resilient in the aftermath of the recession, casting doubt on the future dampening impact of spare capacity on inflation.

The minutes show the member believed: ‘Demand had recovered at home and abroad, and the average growth of the main measures of UK nominal demand in recent quarters had been above typical pre-recession rates.’

While the minutes show not everyone was convinced, Howard Archer, economist at IHS Global Insight, says the tone of the minutes suggests Sentance is not the only committee member who is worried by sticky inflation.

‘The minutes do seem modestly more hawkish overall, in particular revealing concern within the MPC over the recent resilience of inflation in the UK and the rise in household's short-term inflation expectations,’ he said.

There is also clearly evidence that members remain split about how much spare capacity there is in the economy.