News of the 7-2 vote came as the government published upward revisions to second-quarter growth rates that showed few signs of weakness in an economy that less than a year ago was seen as being on the brink of recession. The economy is now seen as having grown 0.6 per cent in the quarter instead of 0.5 per cent, pushing the year-to-year rate to 1.4 per cent from 1.2 per cent.

"Everything looks rosy," said Stewart Robinson, director of Lombard Street Research Ltd, who expects shortly to revise his forecast for growth next year to above 3 per cent.

Increase `was needed now'

In explaining the decision that boosted the benchmark repo rate to 5.25 per cent from 5 per cent, members of the monetary policy committee pointed to stronger-than-expected domestic demand and indications that the strong increases had continued into the third quarter. It also noted that wages, after adjusting for inflation, were rising strongly and that the booming housing market, with price gains of nearly 10 per cent from a year earlier, could no longer be described as limited to just a few hot spots. In all, the increase "was needed now to keep prospective inflation in line with the target" of 2.5 per cent in two years' time, the nine-member group concluded in the minutes of its Sept. 7-8 meeting.

The rate increase was the first in 15 months and came only three months after the last in a series of rate cuts that had lowered interest rates to 5 per cent from 7.5 per cent in nine months. Economists said the relatively frequent adjustments to official interest rates are a sign of an "activist" central bank and doesn't signal any inconsistency in their thinking.

"I don't think these guys are data junkies," said Steven Bell, chief United Kingdom economist at Deutsche Bank AG, who added, "They've taken a lot of care not to be distracted by data. Instead, the data have moved quite surprisingly" to depict a strengthening economy.

Economists said they weren't surprised that DeAnne Julius, who has worked as an economist for both British Airways and Royal Dutch/Shell Group, and Sushil Wadhwani, who joined the MPC this summer from a hedge fund, both voted to leave rates unchanged. Both have been quite outspoken in their views. But they had been looking for signs of greater division among the committee. Only last month, all nine had voted unanimously to do nothing, and eight of nine had voted to lower rates in June.

Instead, the large degree of consensus suggests that more rate rises are in the offing. "Now the hawks have gained the upper hand," said Jonathan Loynes, UK economist at HSBC Investment Bank. "Based on past experience, once you see the turning point in interest rates, you tend to see a series of rapid moves."

One more expected

Loynes predicted that there will be one more increase this year, most likely in November, and that the benchmark rate will be back at 6 per cent by the end of March. Economists at Deutsche Bank AG also expect a further rate increase this year.

A survey of traders at 24 firms that was published by IDEA, a private forecasting firm, before the minutes were released, showed that fewer than 30% of those responding thought the chance of a rate rise next month was at least 50 per cent. But Sean Callow, an IDEA currency strategist, said the firm believes the Bank of England will raise rates twice before year-end. Those expectations will continue to support the pound, which climbed more than a cent against the dollar Thursday to reach his short-term target of $1.64.

In the minutes, the Bank of England made clear that it wouldn't avoid raising rates later this year if necessary just because of potential computer problems as 1999 becomes 2000. "The committee could see no reason why this should constrain UK monetary-policy setting, and monetary policy would continue to be set, on the basis of the news from month to month, with a view of achieving the inflation target," it said.

Unlike previous decisions, it didn't dwell much on sterling, which has confounded central-bank predictions that it would weaken. A rising exchange rate helps reduce inflation by making imports less expensive.

-- The Wall Street Journal