Interest rates look very likely to go up in July, analysts said last night, after it emerged that Mervyn King, the Governor of the Bank of England, voted for a quarter-point rise this month and was narrowly defeated.

The news sent sterling soaring against the dollar, to a high of $1.9941, and pushed it to a 15-year high against the yen as traders bet on tighter policy.

The 5-4 vote, revealed in minutes of the Bank’s Monetary Policy Committee’s June meeting, was unexpectedly close and marked only the second time that the Governor has let himself be outvoted. It was the first time that he has done so while voting for a rise in rates.

Speaking at the Mansion House last night, Mr King highlighted the risks to the economy from the growth of broad money, which rose by 13.8 per cent in the year to May, the fastest pace since October. “It would be optimistic in the extreme to suppose that the rapid growth of money and credit could be dismissed solely as a positive shock to the demand for money,” he said.

Mr King was joined in voting for highter rates by Sir John Gieve, a Deputy Governor, and by Andrew Sentance and Tim Besley, who are the MPC’s two so-called “superhawks”, regularly voting for tighter policy in the past year. Those who voted to hold rates argued that a decision to raise rates would be a surprise to the market, pushing the yield curve higher unnecessarily.

Philip Shaw, of Investec Securities, said: “The doves’ arguments appear principally to be related to timing rather than outright objection to another move, and the fact that the minutes will probably lead markets into pricing in a July hike makes it that much more likely to happen next month.”

A Reuters poll immediately after the minutes were published showed that 44 out of 64 City economists now expected rates to rise next month. Of those, 18 said that rates would eventually hit 6 per cent – up from ten respondents before the minutes were published.

The hawks on the MPC said that there was “no compelling reason to wait” to raise interest rates, which the MPC had already signalled was likely in May. The economy “was still growing robustly” despite four rate rises since August, business investment intentions were strong and oil prices had risen. In addition, with goods prices continuing to rise, inflation in the service sector would have to weaken. A recent drop in service sector inflation “might not persist if demand remained strong”, they argued.

The minutes noted “some further signs of easing in the housing market”, although house price inflation was little changed in recent months.

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