The Bank of England has warned the squeeze from Brexit-fuelled inflation on household income has begun and said growth would remain "moderate" after faltering at the start of the year.
Policymakers on the Monetary Policy Committee (MPC) kept interest rates on hold at 0.25% as they nudged down the growth forecast to 1.9% for 2017 from 2% in February after a sharp slowdown in the first three months of the year.
The Bank said consumers were beginning to feel the pinch from surging inflation as the pound's plunge since the Brexit vote has pushed up prices.
It said inflation would hit just under 3% in the fourth quarter, far outstripping wage rises, which will see households rein in spending.
Economic growth pulled back sharply to 0.3% in the first three months of the year, from 0.7% in the previous three months after a sharper-than-expected fall in consumer spending.
The Bank said, while it expects first quarter expansion to be revised higher to 0.4%, the economy would likely continue at a "similarly moderate pace of growth in the second quarter and beyond".
Minutes of the rates meeting showed seven MPC members voted to keep rates unchanged, while outgoing policymaker Kristin Forbes remained the sole dissenter, repeating her call for a rise to 0.5%.
The pound slumped on the news, falling 0.4% against the US dollar to below 1.28.
Against the euro, the pound was trading 0.3% down at 1.18 euro.
In the report, the Bank cautioned the expected slowdown in consumer spending "may have started".
It said growth had fallen "markedly" in the first quarter and added a "slowdown appeared to be in train".
This was "concentrated in consumer-facing sectors, consistent with the impact of the fall in the exchange rate feeding through to household income and spending," the Bank added.
But its quarterly inflation report signalled this year would be the worst for the income squeeze, predicting that real wages would begin to pick up over the next three years, while the pound's recent rebound would limit the surge in inflation.
The report, released alongside the rates decision, also offered some cheer for the growth outlook as forecasts were raised to 1.7% for 2018 and 1.8% in 2019 from February's prediction for 1.6% and 1.7% respectively.
The Bank said growth would be supported by a recent recovery in business investment and higher exports amid a bounce-back in the global economy.
While inflation, currently at 2.3%, would likely remain above the 2% target "throughout the next three years", the Bank said the pound's gain after the General Election would help inflation ease back in 2018 and 2019.
Minutes of the rates meeting suggested the next move in rates would still be a rise, with other MPC members repeating it would take "little further upside news" to consider joining Ms Forbes in voting for a hike.
The Bank added that financial market assumptions for just one rate rise to 0.5% in 2020 would not be enough to rein in inflation.
But many economists do not expect rates to rise until 2019 at the earliest.