* MPC votes 7-2 to keep Bank Rate on hold for now
* Policymakers say less tolerant of rising inflation
* MPC cautions that Brexit effects uncertain
* Sterling jumps by 1 cent against dollar
(Adds Carney comment)
By David Milliken and William Schomberg
LONDON, Sept 14 (Reuters) - The Bank of England said it was
likely to raise interest rates in the coming months if the
economy and price pressures keep growing, giving its clearest
signal to date that Britain's first rate hike in a decade is
The BoE said its tolerance for above-target inflation was
lessening even if Britain's departure from the European Union
remained a risk. Data this week showed prices rising faster and
unemployment falling to a four-decade low.
Policymakers voted 7-2 on Thursday to keep rates on hold at
a record-low 0.25 percent, as expected.
But the new guidance from the BoE pushed sterling to a
one-year high against the U.S. dollar. Investors priced in a
more than 50 percent chance of a rate hike before the year's
The BoE said the economy now looked closer to running at
full capacity as employment rose and wages picked up, boosting
If this continued, most of its policymakers felt "some
withdrawal of monetary stimulus was likely to be appropriate
over the coming months," it said.
Governor Mark Carney said he was among the BoE rate-setters
who felt the balance of risks for the economy was shifting away
from a Brexit slowdown and towards rising inflation, meaning the
chance of a rate hike had "definitely increased".
"I would describe (a rate hike in) November as being live,"
Nomura economist George Buckley said.
Other economists said they still thought the BoE was in no
hurry, given the slowdown in Britain's economy this year and the
doubts about what leaving the EU in 2019 will mean.
"We see this as an attempt to shake markets out of their
complacency after the failure of previous, subtler, attempts,"
Andrew Goodwin, an economist at Oxford Economics, said.
The Brexit vote has put the BoE in a dilemma. On the one
hand, it wants to support the economy through its EU divorce,
leaving it behind other central banks raising interest rates
such as the U.S. Federal Reserve.
But at the same time, it needs to keep a grip on inflation
which rose sharply after the Brexit vote weakened the pound.
The BoE has previously suggested a rate hike was nearing
only to be caught out by surprises in the economy, earning
Carney the epithet of "unreliable boyfriend" from a politician.
Indeed, the BoE said on Thursday there were "considerable
risks" to the outlook, including Brexit.
on Brexit and her Conservative Party holds a conference in
October. May will also attend an EU summit next month.
Economists at Citi said there still hurdles in the way of a
rate hike. "If these events pass without significant effect on
economic confidence, if inflation exceeds 3 percent in October
and if the labour market continues to tighten, a 25 basis-point
Bank Rate hike could become a reality for November," they said.
Most economists had been expecting a first rate hike by the
BoE only in 2019, according to a Reuters poll last month.
BETTER THAN EXPECTED?
The BoE said on Thursday that the economy had done a bit
better than expected since its policymakers met in August, but
it was unclear how sustained any increase in growth might be.
Inflation was likely to rise further above its 2 percent
target and exceed 3 percent in October, slightly more than
previous forecasts, after reaching 2.9 percent last month.
Most economists judge that wage growth is still weak at 2.1
percent year-on-year in July. But the BoE surprised many of
them, saying pay was rising at an annualised rate of 3 percent
when measured over a shorter period. Furthermore, statistical
effects might be making pay look too low, it added.
The BoE also said there were signs consumer demand might now
be picking up after inflation hurt spending earlier this year.
And it repeated its warning that Britain could no longer
grow as fast as it had in the past without causing excessive
Two policymakers, Ian McCafferty and Michael Saunders, voted
once again to raise rates to 0.5 percent to reverse the
emergency cut made in August 2016 shortly after the Brexit vote.
Some analysts had expected BoE Chief Economist Andy Haldane
to join the dissenters.
Gertjan Vlieghe, who was the first MPC member to vote for a
rate cut after the Brexit vote, is due to speak on Friday while
Carney will make a speech on Monday.
(Editing by Toby Chopra and Jon Boyle)