Bank of England policymakers calmed market expectations of early interest rate rises, saying on Thursday that they wanted to avoid a marked economic slowdown which might pull the inflation rate below target.
While several Monetary Policy Committee members told a parliamentary committee they had considered raising interest rates at their last meeting to keep inflation down, the overall message of the testimony was balanced.
Markets, which have been pricing in interest rate rises this year, moved to discount a lower probability of this happening, especially after Bank Governor Mervyn King said the sharp gyrations in interest rate pricing had been puzzling.
While MPC members are clearly worried by the prospect of inflation rising past 4 percent this year and feeding into higher wages, they were also conscious that the economy was slowing and this would help tame price pressures.
"The economic slowdown will need to be sufficient to ensure that inflation does not persist above the target. But at the same time, we need to avoid a slowdown that is so pronounced that it would pull inflation down, not just to the target, but below," Bank Governor Mervyn King said.
Five members of the Bank's Monetary Policy Committee (MPC) were giving testimony to parliament's Treasury Committee on the central bank's May inflation report.
"Overall, the various comments from MPC members over recent weeks look like a recipe for the Bank to sit on it hands in the coming months," said Dominic Bryant, economist at BNP Paribas.
Asked about whether he was being dovish or hawkish, King said he did not know what level of interest rates would be required to get inflation to the 2 percent target. His recent comments, he said, were meant to be "balanced."
