The MPC cited "an increase in the perceived likelihood of a no-deal Brexit" which has further lowered UK interest rates and the sterling exchange rate.
However assuming a smooth Brexit, the Committee said that "a significant margin of excess demand is likely to build in the medium term" which would necessitate an increase in interest rates to return inflation to its 2% target.
The MPC said that increased uncertainty about the nature of EU Withdrawal means that the future of monetary policy is also uncertain and could go in either direction.
In its minutes, the Committee said that Brexit-related developments, such as stockbuilding, are making UK data volatile.
After growing by 0.5% in Q1, GDP is expected to have been flat in Q2, slightly weaker than anticipated in May.
Underlying growth has also slowed since 2018 to a rate below potential, reflecting the impact of intensifying Brexit-related uncertainties on business investment.
The MPC says that evidence from companies, up to the middle of July, suggests that uncertainty over the UK’s future trading relationship with the European Union has "become more entrenched".
It added that global trade tensions have intensified and global activity has remained soft which has led to a "substantial decline in advanced economies’ forward interest rates and a material loosening in financial conditions, including in the United Kingdom".
Nancy Curtin, chief investment officer at Close Brothers Asset Management, commented: “With Boris Johnson taking the helm, risk of a no-deal Brexit has continued to rise as we sail closer to the October deadline.
"The Monetary Policy Committee has continued its wait-and-see approach, and with good reason, as the country grapples with the prospect of new economic policies and sustained Brexit uncertainty. The recent slump in the pound may push up prices and hit consumers, which in turn is likely to lead to a fall in confidence.
"The increasing risk of a no-deal Brexit makes the possibility of a rate cut before the end of the year more likely. However the MPC will weigh any rate cut against ‘boosterism’—the Prime Minister’s pledge to support the economy through fiscal (public sector and infrastructure) spending.”
Frances Haque, UK chief economist at Santander, added: “With the uncertainty over the outcome of Brexit still hanging in the air and the increased possibility of a no-deal Brexit, the decision to hold rates won’t be a surprise to the market.
“Although the economic data published for the second quarter of this year has been lacklustre, many of the fundamentals such as low unemployment and strong wage growth remain, yet the MPC clearly remains cautious in its approach.
“Until there’s more clarity on the final outcome of Brexit, it’s unlikely we’ll see a rate rise this year, with the market implying that a cut is more likely.”
