Bank unanimous on March policy

The minutes said policymakers thought it "increasingly likely" that inflation would remain well above target in the months ahead, though they still expect it to fall back once upward pressure from a rise in value-added tax, higher oil prices and the past fall in sterling wear off.

On the other hand, the pound has fallen again in recent weeks, and policymakers said this could put further pressure on inflation and feed through into the public's price expectations.

"If it persisted, the recent further depreciation of sterling was likely to put additional upwards pressure on inflation over the next few quarters," the minutes said.

"Against that background, there was a risk that the public's expectations of inflation over the medium term might begin to rise. The Committee would keep under close review the extent to which these shocks to the price level were feeding through into inflation expectations."

The MPC said recent activity indicators painted a mixed picture, and that despite upbeat surveys in February, data were likely to remain volatile due to the impact of the cold weather and tax changes.

"It was nevertheless clear that output was, and was likely to remain, well below capacity for an extended period."

"Given that outlook, Committee members continued to expect that a significant margin of spare capacity in the economy was likely to bear down on inflation, once the temporary impact of shocks to the price levels had worn off."

In addition, it was likely to take some time for exporters to feel the benefit of the weak pound, due to uncertain growth prospects in Britain's main export markets, the minutes said.

(Reporting by David Milliken and Fiona Shaikh; editing by David Stamp)