A clear warning that interest rates are heading higher this year, unless the economy eases off, came yesterday from the Bank of England.
In the first split decision since last April, Paul Tucker voted to raise the official interest rate by a quarter point to five per cent at the meeting of the Bank's interest-setting committee on February 9 and 10.
Minutes of the meeting also revealed that other unnamed committee members "noted that an increase might be warranted in due course" if the economy evolved in the manner of the central projection in the Bank's latest Inflation Report.
In the event, Mr Tucker's eight fellow members of the Bank's Monetary Policy Committee voted to leave the cost of borrowing unchanged.
Separately, the CBI predicted that the Bank will make one more increase taking its interest rate to five per cent in the late spring of this year.
The CBI's latest economic forecast also raised its estimate of Britain's economic growth this year to 2.7 per cent from a previous 2.5 per cent, driven mainly by Government investment.
Within this, manufacturing output should grow by 1.8 per cent this year, followed by 1.7 per cent in 2006.
News that this month's no-change decision by the Bank's committee was not unanimous followed hawkish comments published on Tuesday from Kate Barker, previously seen as one of the more dove-ish committee members. She said in a newspaper interview that rates may need to rise again.
This month, though, she voted with the majority, which opposed any increase until the trend in household spending became clearer, along with the speed at which consumer prices were rising to meet higher costs.
Mr Tucker argued that the economy seemed to have recovered from its "soft patch" late last summer. It could also be stimulated by gently rising inflation which had the effect of lowering real interest rates.
In the City, his dissenting vote was viewed by some as a signal that the likelihood of higher rates sooner rather than later had risen.
"The general tone seems to be quite surprisingly hawk-ish," said Ross Walker, UK Economist at RBS Financial Markets.
"The fact that we've already got dissent is significant. We still prefer an August rate hike to May, but I think the risks are shifting."
The pound rallied against the dollar and the euro after the minutes were released while interest rate futures contracts fell further, reflecting a greater than even chance of an increase in the second half of this year.
The tone of the minutes, though, was carefully balanced.
They stated: "The commit-tee's best collective judgment was that, overall, risks to the central projections for both growth and inflation were somewhat on the downside. But different members gave different weights to some of the underlying risks."
Mr Tucker, indeed, agreed that on balance the growth and inflation were more likely to fall short of the Bank's projections than to exceed them. But this downside risk was less than it had been in November.
The central projection for inflation showed it rising to the two per cent target next year and then moving higher - with the implication rates will probably rise again later this year.
Mr Walker said that Mr Tucker's dissent was significant as he is regarded as being instinctively close to the Bank's Governor Mervyn King.
John Butler, an economist at HSBC, said: "There's still a door open for more rate hikes."
He expects the next move in May and for the official rate to climb to 5.25 per cent by the end of this year. ..SUPL: