The Bank of England (BOE) left its key Bank Rate at 0.25 percent, along with its stimulus measures launched in August following the country's decision to leave the European Union (EU), and confirmed its neutral guidance that policy "can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target."
As in November, all nine members of the BOE's Monetary Policy Committee agreed on today's policy decision and said data since last month's inflation report continued to indicate moderate growth that is underpinned by solid consumption.
But forward-looking business surveys suggest that "some slowing in activity in in prospect during 2017," with the timing and extent of this dependent on how wages evolve and how resilient households are to the pressure on incomes from higher inflation, BOE said.
Inflation in the United Kingdom rose to a 2016-high of 1.2 percent in November and the BOE expects inflation to reach its 2.0 percent target in six months, boosted by the fall in sterling.
But since the MPC's last meeting in November, the BOE said the exchange rate of sterling has risen, which should help cool off inflation compared to its forecast.
Pound sterling was trading at 1.243 to the U.S. dollar today, up from 1.27 before yesterday's rate hike by the U.S. Federal Reserve, but down 18.2 percent since the start of this year.
But the BOE said it still expects inflation to temporarily overshoot its target later next year and through 2018 and fully offsetting this by higher interest rates would result in "undesirable" downward pressure on wages, economic output and higher unemployment.
As a result, the MPC confirmed that it's policy stance will be based on ensuring that "inflation returns to its target over a longer period than the usual 18-24 months."
That said, BOE acknowledged there are limits to how long it will tolerate above-target inflation, with the limits depending on the reasons for higher inflation along with inflation expectations and the shortfall in economic activity.
Gross Domestic Product in the UK grew by an annual rate of 2.3 percent in the third quarter of the year, up from 2.1 percent in the second quarter.
In November the BOE forecast 2.2 percent GDP growth this year, easing to 1.4 percent in 2017 and then rising to 1.5 percent in 2018 and 1.6 percent in 2019.
Inflation this year was forecast of 1.3 percent before rising to 2.8 percent next year and 2.7 percent in 2018 and 2.5 percent in 2019.
The Bank of England issued the following statement: