The Bank of England said today that it may need to raise interest rates before the late 2019 date that markets had been expecting, assuming Britain can leave the European Union smoothly in two years' time.

With only a month until a national election, the Bank said the short-term squeeze on households from inflation since June's Brexit vote would be more severe than it predicted in February, with price growth peaking at over 2.8 per cent late this year.

Britain's economy shrugged off expectations of a recession after last year's referendum, and chalked up one of the fastest growth rates among major rich economies.

But official data has soured since the start of the year. Data published today showed industrial production disappointed in the first quarter, and little boost for exporters from the fall in the pound since the Brexit vote.

Many economists expect tougher times ahead as Prime Minister Theresa May starts two years of fraught Brexit talks before the country leaves the European Union at the end of March 2019.

The BoE policymakers said they could only do so much to offset the Brexit hit to the economy.

"Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years," the Bank said in a summary of its meeting.

However, the Bank said it expected a pick-up in foreign trade and investment would offset a shortfall in domestic demand this year, and then saw a sharp pick-up in hitherto lacklustre wage growth as unemployment fell to its lowest in a generation.

"Monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve underlying the May projections," the Bank said.

This could imply the Bank will raise rates for the first time since 2007 just as Britain leaves the EU.

The central bank trimmed its forecast of growth this year to 1.9 per cent from 2.0 per cent, but nudged up its forecasts for 2018 and 2019 to 1.7 per cent and 1.8 per cent. Last year Britain's economy grew 1.8 per cent.

The Bank said inflation was likely to fall back to 2.16 per cent in just over two years' time - still above the BoE's target - and then pick up slightly going into 2020. Usually Bank of England inflation forecasts show inflation falling steadily back to target. (Reuters)