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Interest rates held at 0.25% but THREE of the eight Bank of England policymakers voted for a hike as inflation fears bite

The Bank of England decided to hold interest rates at 0.25 per cent today despite concerns over rising inflation.

The Bank’s policymakers were split over the need for a rate rise as three of eight monetary policy committee members called for a hike to 0.5 per cent to contain rising prices.

Official figures this week showed the consumer prices index measure of inflation jumping to 2.9 per cent in May – well above the 2 per cent rate that the Bank is charged by the Government to target.

The Bank of England has decided to hold interest rates at 0.25 per cent despite concerns over rising inflation.

Minutes of the latest decision showed MPC members Ian McCafferty and Michael Saunders joined outgoing rate-setter Kristin Forbes in voting for a rise to 0.5 per cent, marking the first time that three members have dissented for more than six years.

The pound surged a cent on the dollar to 1.279 and two-thirds of a cent on the euro to 1.146 after the shock vote as currency traders laid bets that rate rises will come sooner than 2019 as previously thought.

The announcement comes as the latest data on the economy highlighted the dilemma facing the Bank’s rate-setters.

Retail sales were reported by the ONS to have dropped last month as shoppers felt the pinch of rising prices in all sectors. Sales in May fell by 1.2 per cent as employment figures grew and inflation increased but wages failed to keep up.

Compared to last year, retail sales have only increased by 0.9 per cent, the weakest annual growth rate since April 2013.

Fears over a weakening economy, particularly in the light of the shock election result, mean that most of the Bank’s rate-setting committee are wary of raising rates and dampening economic activity further.

The Bank said the pound’s weakness since last week’s shock indecisive General Election result would add to the pressure on inflation as sterling’s fall since the Brexit vote has sent the cost of imported goods and energy soaring.

Minutes showed the MPC raising concerns that ‘inflation was projected to overshoot the target by more than previously expected and to remain above it throughout the three-year forecast period’.

But it said there were ‘arguments in favour of leaving the policy rate unchanged’.

Compared to last year, sales have only increased by 0.9 per cent, the weakest annual growth rate since April 2013

‘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,’ the Bank added in the minutes.

Growth slowed more than the Bank expected, to 0.2 per cent in the first quarter, but it believes this will be revised higher to 0.3 per cent, while growth should edge up to 0.4 per cent in the second quarter.

‘Although the outlook remained uncertain, there had on balance been little clear news in the economic data to challenge the Committee’s projection for moderate GDP growth over the remainder of the year,’ it added.

But the Bank sent out a warning shot that it would not be able to offer much relief to cash-strapped households.

‘Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years,’ the minutes said.

Mike Amey at PIMCO told MailOnline: ‘The minutes strike a surprisingly hawkish tone, not just the three votes for an immediate hike but also the commentary that the decision was becoming more balanced for the committee as a whole.

‘Given the weakness in real income growth a near term hike would be a bold move, but this is a useful wake up call to the market regarding the low level of longer term UK interest rates.’

Official data revealed today by the Office for National Statistics revealed the cost of living continues to rise

The economy’s resilience since last June’s Brexit vote has been built on consumer spending and shopping is the cornerstone of the UK economy.

But analysts said the latest ONS retail figures shows that consumers are now beginning to rein in their spending.

ONS senior statistician Ole Black said: ‘The year-on-year growth in the quantity bought for retail sales in May 2017 was at 0.9 per cent.’

‘We have not seen lower growth on the year since April 2013. Increased retail prices across all sectors seem to be a significant factor in slowing growth.’

Non-food stores were the main contributor to the slowdown after reporting an annual sales fall of 1.2 per cent.

However, predominantly food retailers saw the lowest annual growth since July 2013 at just 0.1 per cent.

Ian Geddes, head of retail at Deloitte, said the figures were an early indication that store prices were starting to rise and impacting on demand.

He said: ‘This week has seen UK inflation rise to 2.9 per cent, the highest since June 2013.

Contrarian: Forbes has been outspoken about inflation and her warnings have come true

‘We are starting to see this impacting average in-store prices, which increased by 2.8 per cent, the largest growth since March 2012, and non-food saw the biggest price rise since October 2011.’

‘This suggests that retailers are having to pass some of the cost pressure from the rising price of imported goods on to consumers.

‘Consumers will also be feeling the squeeze in other areas of spending, including electricity and other utilities payments.

‘In addition, real wage growth is now in negative territory, which will likely dampen consumer confidence in the coming months.

‘With this in mind, it is likely we will see the industry renew its thinking on building customer loyalty.

‘It is much cheaper to retain existing customers rather than attract new ones.’

Ian Gilmartin, head of retail and wholesale at Barclays, said: ‘The run-up to a general election often provides a bit of a slowdown for the retail sector, with consumers less willing to commit to large purchases, but the reasons for the softer result this time are more complex.

‘Inflation is really starting to kick in, with prices in the sector increasing at the highest rate for more than five years and expected to rise further.’

Ian Geddes, head of retail at Deloitte, said the figures were an early indication that store prices were starting to rise and impacting on demand