Wait and see on rates – MPC minutes

The Bank of England's monetary policy committee (MPC) voted 9-0 to hold rates at 0.5% and continue the £200 billion ($363 billion) asset-purchase programme.

"Committee members agreed that recent developments did not provide grounds for substantially changing their views about the medium-term prospects for activity," the minutes of the meeting held on 6 and 7 January showed.

The MPC acknowledged that inflation may move above target but reasoned that as this was largely due to short term factors, and so long as expectations were not affected, there was no cause to act: "It was increasingly probable that CPI inflation would rise to well above the 2% target in the early part of 2010 and remain elevated for several months," the minutes said.

"There was a risk that a sustained period of above-target inflation could cause inflation expectations to drift upwards. The committee would monitor closely the extent to which price-level shocks affected inflation expectations. But so long as expectations remained consistent with the 2% target, the medium-term outlook for inflation - the key consideration when setting monetary policy -would reflect the balance between demand and the supply potential of the economy," the minutes said.

The committee acknowledged that the most recent data gave mixed signals about the strength of demand but said overall, the figures were consistent with the view that the UK economy had begun to expand again, "albeit weakly". There remained powerful headwinds impeding the recovery, the members noted."Given those prospects, and the significant degree of spare capacity in the economy, committee members continued to expect inflation to fall below the target for a period once the various near-term price-level shocks to inflation had worked through," the minutes concluded.

The MPC would look ahead to the projections and analysis prepared for the February Inflation Report for a "more comprehensive assessment of the latest information about the supply potential of the economy, as well as the impact of the various headwinds and tailwinds affecting activity and inflation."

Click here to read the minutes