The Bank of England said interest rates probably needed to rise sooner and by a bit more than it thought three months ago, after it raised its economic growth forecasts for Britain due to the strong global recovery.
The BoE's rate-setters voted 9-0 to hold the bank rate at 0.5 percent, the central bank said on Thursday, giving them time to assess how the world's sixth-biggest economy copes with the approach of Brexit.
But Governor Mark Carney and colleagues said they now wanted to return inflation to its 2 percent target over "a more conventional horizon", a sign they were turning their sights to tackling price growth over two years rather than three.
The Monetary Policy Committee raised interest rates for the first time in a decade in November and said on Thursday that it now thought the next rate hike needed to come a bit more quickly than it thought then.
Before Thursday's statement, investors saw a nearly 50-50 chance of the next hike coming in May, when the BoE is due to update its economic forecasts again, and this new message is likely to increase bets on a move then.
"Were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report," the MPC said.
Britain's economy has slowed since the 2016 Brexit vote but it has fared better than many investors expected at the time of the referendum, thanks largely to the much stronger global rebound in countries such as the United States, Germany and other key trading partners.
The BoE has stuck to its plan to raise rates gradually and before Thursday's announcement financial markets were expecting the bank rate to hit 1.2 percent by early 2021, the BoE noted, something that would suggest two or three rate hikes by then.
The BoE linked the sluggish British outlook to slower growth in the labour force, due to fewer immigrants coming to Britain after Brexit and the country's ageing population
However that scenario would still leave inflation above its 2 percent target in three years' time, the BoE said on Thursday, suggesting it might hikes rates by more than investors have been expecting recently.
In November, the BoE signalled it expected two hikes over the following three years.
FASTER GROWTH
On Thursday, the BoE nudged up its economic growth forecasts for Britain to show an average annual expansion of 1.75 percent over the next three years.
That was a lot weaker than its expectation of global growth of nearly 4 percent over the same period and was also below the country's pre-financial crisis average of about 2.9 percent.
The BoE linked the sluggish British outlook to slower growth in the labour force, due to fewer immigrants coming to Britain after Brexit and the country's ageing population.
But even with slower economic growth, Britain remained susceptible to excessive inflation. The BoE said it expected Britain's economy could only grow by 1.5 percent a year before it started to generate too much price pressure.
Annual wage growth is expected to pick up to 3 percent by the end of 2018, in line with previous forecasts.
The BoE lowered most of its inflation projections after sterling rose recently and bond yields in financial markets jumped. But inflation was expected to remain above the 2 percent target at 2.11 percent in three years' time.
Some economists have said that the BoE has a narrow window to raise rates because later in the year, London and Brussels could be wrangling over their long-term relationship, weighing on the economy and possibly preventing the bank from moving.