In the Bank of England's latest Inflation Report, the market-implied path for Bank Rate drops to 0.4% until Q2 2017 before reaching just 0.8% in three years' time.
However the MPC predicts that as conditions improve, a return of inflation to the 2% target by mid-2018 is still possible, but states that the most significant risks to its forecast concern the referendum.
It believes that a "vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy".
In the UK, activity growth slowed in Q1 and a further deceleration is expected in Q2 as uncertainty associated with the EU referendum begins to weigh on activity.
The Bank of England believes that a Brexit could "lead to a materially lower path for growth and a notably higher path for inflation than in the central projections set out in the May Inflation Report".
The MPC admitted that the referendum is making "underlying economic momentum harder to interpret at present" and is currently reacting more cautiously to data than usual.
Ben Brettell, Senior Economist at Hargreaves Lansdown, said:
"It wasn’t a surprise that the Bank cut its growth forecast for 2016, to 2.0% (compared with the 2.2% expected in February’s Inflation Report).
"Another unsurprising result was the unanimous decision to leave rates on hold. In fact what speculation there was centred on whether any of the nine-strong committee would vote to cut rates, rather than raise them. The Bank expects inflation to reach its 2% target in mid-2018, before going on to rise further. These predictions assume bank rate follows market expectations of the first rise some time in 2018, and therefore suggests that if the Bank wants to avoid inflation exceeding the target, it needs to start raising rates somewhat sooner."
