The Bank of England left its key record-low interest rate and the size of its asset purchases unchanged in a unanimous vote and downgraded its growth projections on heightened uncertainty over the EU referendum.
The Bank cautioned that any decision to exit the EU would lead to a materially lower growth path and a notably higher path for inflation.
The Monetary Policy Committee, led by Governor Mark Carney, voted 9-0 to hold the interest rate at 0.50 percent, the bank said in a statement on Thursday. The rate has been at this low level for seven years.
Policymakers also unanimously voted to maintain the quantitative easing at GBP 375 billion.
In the Inflation Report, the bank downgraded its growth forecast as uncertainty associated with the referendum started to weigh on activity.
The economic growth is projected to decelerate somewhat further in the second quarter, when GDP is seen expanding 0.3 percent.
The growth outlook for 2016 was trimmed to 2 percent from 2.2 percent estimated in February. Similarly, the projection for 2017 was lowered to 2.3 percent from 2.4 percent.
At the same time, inflation is projected to rise steadily over the following months, reaching 0.9 percent in September, slightly higher than projected in the February report. Inflation is forecast to rise slightly above the target as in the February report.
Inflation is expected to reach 2.1 percent in the second quarter of 2018. According to the May report, prices will rise 0.4 percent in the second quarter of 2016 as previously projected.
Going forward, inflation will rise to 1.5 percent in the second quarter of 2017 instead of 1.6 percent. The projection is based on the assumption that UK will remain in the European Union.
The bank warned that a vote to leave the EU would defer households' consumption and firms would delay investment. Sterling is also likely to depreciate further, perhaps sharply.
Whatever the outcome of the referendum and its consequences, the MPC will take whatever action is needed to ensure that inflation expectations remain well anchored and inflation returns to the target over the appropriate horizon, BoE said.
Should the UK vote to leave the EU, sterling would likely collapse and interest rates would probably be cut as the BoE tries to shore up confidence, James Knightley, an ING Bank NV economist said. Such an outcome would likely have global ramifications with the euro probably weakening in response.
In a letter to Chancellor George Osborne, Carney said the existence of the referendum makes macroeconomic and financial market indicators less informative than usual.
"In advance of the referendum, the MPC has indicated that it will react more cautiously to incoming data than would normally be the case," Carney wrote.
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