The Bank of England froze interest rates at a record-low 0.25 percent as expected on Thursday, but revealed that three policymakers surprisingly called for a hike to counter surging inflation.
The central bank's monetary policy committee (MPC) unexpectedly voted 5-3 in favour of keeping its key interest rate at a record-low 0.25 percent, where it has stood since last August.
Thursday's decision sent the British pound racing higher against the dollar because only one member had previously advocated a rate hike.
"The Bank of England caught traders off-guard on Thursday, turning what was expected to be a rather mundane affair into something far more interesting," said Oanda analyst Craig Erlam.
MPC members Ian McCafferty and Michael Saunders joined Kristin Forbes in voting for an increase to 0.50 percent, minutes from the meeting showed.
Forbes, who leaves the rate-setting panel at the end of the month, had been the lone voice for a hike in both the previous two meetings. This week's vote marked the first time that three members have dissented for more than six years.
"The hawkish tone of June's MPC policy decision and minutes supports our view that rates will rise rather sooner than investors expect," said economist Scott Bowman at research consultancy Capital Economics.
"Admittedly, the consensus had expected arch-hawk Kristin Forbes to maintain her rate hike call, but the addition of Michael Saunders and Ian McCafferty came as a surprise."
The pound later ran out of steam because the dollar remains buoyed after the US Federal Reserve lifted interest rates on Wednesday. Rising rates make currencies more attractive for investors to hold.
The MPC meanwhile forecast inflation would surge further above the central bank's 2.0-percent target in the coming months.
"CPI inflation has been pushed above ... target by the impact of last year's sterling depreciation," the BoE added Thursday.
"Inflation could rise above 3.0 percent by the autumn and is likely to remain above the target for an extended period as sterling's depreciation continues to feed through into the prices of consumer goods and services," it said.
"In contrast, pay growth has moderated further from already subdued rates," it cautioned.
- Inflation surges -
Consumer Price Index inflation leapt to a four-year high at 2.9 percent in May, as a Brexit-fuelled slump in the pound pushed up import costs, official data showed earlier this week.
Inflation had held close to zero throughout 2015 -- but has surged since then on the back of the weak pound following the shock EU exit vote in June 2016.
Sterling took another mauling last week, striking a seven-week dollar low after British Prime Minister Theresa May's Conservatives lost their absolute majority in a shock election result.
The BoE indicated Thursday that the pound's weakness since the indecisive general election outcome would add to inflationary pressures.
However, it also said there were "arguments in favour of leaving the policy rate unchanged".
"A slowdown in household consumption and gross domestic product as a whole had recently begun ... although consumer confidence had held up, there had been further signs of a slowing housing market and new car registrations had fallen sharply," it added.
Economic growth slowed to just 0.2 percent in the first three months of 2017, after 0.7-percent expansion in the final quarter of 2016.
With wages growth failing to match the rises in inflation, consumers are limiting how much they spend in stores and online.
Retail sales dropped 1.2 percent month-on-month in May after jumping by an upwardly-revised 2.5 percent in April, official data showed Thursday.
The MPC also voted Thursday to maintain the quantitative easing stimulus cash pumping around the economy at £435 billion ($555 billion, 494 billion euros).
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