"For now, it seems the Bank of England will be sitting tight on a rate rise given the headwinds the UK economy faces and the strengthening of the pound."
The Bank has cut its GDP growth forecast in the short term but raised its projections in the medium term, predicting growth of 1.7% in 2018 and 1.8% in 2019.
The new projections are conditioned on a path for Bank Rate that rises to just 0.5% by mid-2020, around 20 basis points lower than in the February Report.
The MPC hinted that "monetary policy could need to be tightened by a somewhat greater extent" as a result.
CPI inflation is expected to rise to a peak of 2.7% in Q2 2017 - higher than previously estimated - before falling to 2.6% in Q2 2018 and 2.2% in 2019, lower than the 2.8% and 2.5% previously predicted.
The Bank highlighted that Sterling has appreciated by 2½% since the February Report, with a sharp move on the day that the UK election was announced, possibly reflecting an increase in the probability that market participants are attaching to a smooth, rather than disorderly, Brexit process.
BoE says the outlook for UK growth will continue to be influenced by the response of households, companies and financial market participants to the UK's departure from the European Union, including their assumptions about the nature and timing of post-Brexit trading arrangements.
Tom Stevenson, investment director for Personal Investing at Fidelity International, commented: "As expected the Bank cut its growth forecast in the short term but slightly raised it in the medium term. It also raised inflation guidance and the Bank of England said it expected inflation to hit 2.7% by June 2017, considerably overshooting the Bank’s 2% target.
“The weak pound since Britain’s vote to leave the EU has seen inflation surge in recent months with a weaker sterling pushing up the price of imported goods. For now, it seems the Bank of England will be sitting tight on a rate rise given the headwinds the UK economy faces and the strengthening of the pound. Mr Carney remains of the view that the Brexit negotiating period will be extremely challenging for the UK economy. But today’s announcement introduces a more hawkish tone than we have seen previously."
