"This difference cannot persist indefinitely, and the nature and timing of its resolution are likely to be key factors in the MPC’s policy assessment."
CPI inflation increased to 1.8% in January, and the MPC expects it to rise above the 2% target over the next few months, before peaking at around 2¾% in early 2018.
The Committee noted that "there are limits to the extent that above-target inflation can be tolerated".
The MPC said that its judgements in the February Inflation Report remain "broadly on track", and that the expectation that there will be some modest withdrawal of monetary stimulus over the course of the forecast period remains appropriate.
However it highlighted that there are "risks in both directions" and remained open to the direction of interest rates.
In the minutes of its meeting, the MPC said: "For example, if aggregate demand growth remains resilient, monetary policy may need to be tightened sooner and to a greater degree than that implied path. A more marked slowdown in activity than currently anticipated by the Committee, by contrast, could warrant additional policy support."
The meeting also discussed how he evolution of asset prices has been different globally to in the United Kingdom, where market interest rates have fallen and "the equity prices of companies with significant domestic exposure – most notably to consumers – have underperformed".
The MPC concluded: "Those developments seem somewhat difficult to reconcile with the ongoing resilience of most macroeconomic indicators. In addition, for some time, financial markets and households appear to have had different perspectives on UK economic prospects. This difference cannot persist indefinitely, and the nature and timing of its resolution are likely to be key factors in the MPC’s policy assessment."
Jeremy Duncombe, Director, Legal & General Mortgage Club, commented: “The Bank of England has chosen not to follow the Fed by voting for a rate rise - no surprise there. The logic suggests that UK economy is not ready for a rate rise, especially with Article 50 just weeks away."
Tom Stevenson, investment director for personal investing at Fidelity International, added: “Despite the Federal Reserve’s well-flagged rate hike yesterday and the promise of more rises to come, the Bank of England continues to tread carefully. The MPC voted 8-1 to keep interest rates at an all-time low of 0.25%.
“Even with inflation expected to breach the central bank’s 2% target this year and unemployment at its lowest since the 1970s, the Bank is keen to keep rates low ahead of Article 50 and two years of uncertain Brexit negotiations. The danger this presents is the Bank getting behind the curve as price pressures increase. When it comes to inflation, you can’t put the toothpaste back in the tube."
