Bank of England signals interest rates cut in future after no change this month
The Bank of England kept interest rates on hold after last month's emergency cut, but said a further reduction was still on the cards despite signs of a bounce-back in the economy.
Minutes of the latest Monetary Policy Committee (MPC) meeting showed members voted unanimously to keep rates at 0.25, after last month's dramatic cut from 0.5% - the first since 2009.
Policymakers said the immediate impact of the Brexit vote on the economy was not quite as bad as first feared.
The MPC said it expects "less of a slowing in UK gross domestic product (GDP) growth" in the second half of 2016.
But it added the economy was still set to suffer a "material slowing" in growth, with internal estimates suggesting growth will slow to between 0.2% and 0.3% in the third quarter.
This will be a sharp slowdown on the 0.6% growth seen in the previous three months, but still not as bad as the Bank had feared in its August forecasts, when it said growth was set to flatline between July and September.
It said recent closely-watched industry data suggesting that major sectors of the economy rebounded strongly in August had been stronger than expected and were "consistent with somewhat less of a slowing in near-term GDP growth".
The Bank's economic stimulus action last month had helped boost markets and financial asset prices more than expected, according to the minutes.
House prices and consumer spending have also held up surprisingly well, the minutes added.
Official figures out separately showed retail sales falling by a far less-than-predicted 0.2% month-on-month in August, while they leapt by more than 6% year-on-year.
Bank governor Mark Carney told MPs last week the August move to cut rates to the new all-time low of 0.25% and unleash a stimulus package worth up to £170 billion had already begun to cushion the blow of the Brexit vote.
He confirmed the chances of a technical recession - two quarters in a row of falling output - had gone down since the Bank's action.
But policymakers have already said another rate cut is likely by the end of the year, to a little above zero, with economists expecting more measures in November when the Bank will have its next set of economic forecasts.
The MPC confirmed in the latest rates decision that more action was likely unless the economy showed a markedly better-than-expected performance.
The minutes said: "The Committee's view of the contours of the economic outlook following the EU referendum had not changed.
"News on the near-term momentum of the UK economy had, however, been slightly to the upside relative to the August inflation report."
On November's inflation report, it said: "If, in light of that full updated assessment, the outlook at that time was judged to be broadly consistent with the August inflation report, a majority of members expected to support a further cut in bank rate ... during the course of the year."
Sterling was largely unmoved against the dollar following the announcement, holding steady and hovering around the 1.32 dollar mark.
Against the euro, the pound was trading 0.04% up at 1.17 euros.
The FTSE 100 remained in positive territory, up 16 points to 6689.33 over the day.
The Bank noted that it had overshot on inflation forecasts, and was expecting a smaller rise in the consumer prices index (CPI) over the second half of 2016.
Inflation held steady at 0.6% last month, but the Bank is still pencilling in a rise to around the 2% target in the first half of next year.
Neil Wilson, a markets analyst at ETX Capital, said: "It's not quite got egg on its face, but the Bank had to admit that a number of indicators of near-term economic activity have been somewhat stronger than expected.
"Policymakers think the economy will slow less in the second half of 2016 than it had first estimated, which simply backs up what economic data has already indicated."
The central bank has not ruled out cutting interest rates to "close to, but a little above, zero".
Tom Stevenson, investment director for personal investing at Fidelity International, said: "If it does cut close to zero later this year it will have very few monetary policy bullets left to fire if the UK economy slips into recession. Mark Carney doesn't want to experiment with negative interest rates so any further rate cut needs to be well timed."