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Pound volatile after surprise Bank vote

Traders in London Image copyright Getty Images

Sterling surged by almost a cent against the dollar after three Bank of England rate-setters voted for a rise in UK interest rates.

The Bank kept its key interest rate at 0.25%, as expected, but the 5-3 split among policymakers was the closest vote for a rate rise since 2007.

The pound was boosted as the vote raised the possibility of rates rising earlier than had been expected.

Sterling hit $1.2795 at one point, but then fell back to $1.2759.

However, it held on to gains against the euro, standing 0.7% higher at 1.1448 euros.

Minutes from the Bank of England's latest meeting showed that Monetary Policy Committee members Ian McCafferty and Michael Saunders had joined Kristin Forbes in voting for a rate rise.

However, some analysts judged that the possibility of an early rate rise was still distant, despite the closeness of this month's vote.

"We continue to think that a majority of MPC members will vote to keep interest rates on hold this year," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"This was Kristin Forbes' last meeting, so the number of hawks likely will decline at the next meeting in August."

On the stock market, news of the Bank's decision pushed the FTSE 100 share index down.

At the close the index was down 55.04 points, or 0.74%, at 7,419.36.

The FTSE 100 often moves inversely to the pound as many of the firms in the index have significant earnings overseas, and a stronger pound means these profits are worth less when converted back into sterling.