The Bank of England has wrong-footed the City by leaving interest rates at their record low level of 0.1%, despite forecasting a jump in inflation to 5% by next spring.

Only two members of Threadneedle Street’s nine-strong monetary policy committee voted for a rise, confounding financial market expectations of an increase in the cost of borrowing to 0.25%.

But the Bank said the respite might prove temporary, warning that if the economy performed as it expects, “it will be necessary over the coming months” to raise rates to hit the government’s 2% target.

Markets are likely to see that as a signal that interest rates will rise at one of the MPC’s next two gatherings – in December or February.

“At its recent meetings, the committee has judged that some modest tightening of monetary policy over the forecast period (the next three years) was likely to be necessary to meet the 2% inflation target sustainably in the medium-term”, minutes of the MPC meeting showed. “The latest developments, set alongside the committee’s updated projections, reinforce this view”.

The MPC said it expected inflation as measured by the consumer prices index to peak at 5% next April but then to fall back “materially” from the second half of 2022.

But its forecast of inflation being a little below 2% by the end of 2024 was based on the assumption in the financial markets that interest rates will rise to 1% during the course of next year. Otherwise, it said, inflation would be 2.6% in three years time.

The Bank reduced official borrowing costs to the lowest level in its 328-year history at the start of the pandemic, but following comments by the governor Andrew Bailey last month there had been growing speculation that it would become the first major central bank to increase interest rates since the global recovery began.

In its quarterly monetary policy report, the Bank said there was more inflationary pressure than it had predicted in August even though the economy was growing more slowly.

Supply chain bottlenecks and weaker consumer spending have resulted in the Bank halving its growth forecast in both the third and fourth quarters of 2021. Growth is now expected to be 1.5% in the third quarter and 1% in the final three months of the year.

Most of the downward revision was caused by supply chain disruption, but the Bank also noted that retail sales had fallen for five successive months and consumer confidence had weakened.

The MPC now thinks it will take until the first three months of 2022 – a quarter later than it previously thought – for the economy to regain all the ground lost during the Covid-19 pandemic.

According to the minutes, seven MPC members wanted to wait and see what happened to unemployment following the end of the furlough scheme before deciding whether a rate rise was needed.

“Current elevated global cost pressures were still most likely to prove transitory, leading to a one-off increase in consumer prices rather than persistently higher inflation rates”, the majority of the committee said.

The two dissenting MPC members – Dave Ramsden and Michael Saunders – said there was no sign that the end of wage subsidies this autumn had eased strains in the labour market and that inflation was likely to remain above 2% unless policy was tightened. Action now might avoid the need for more aggressive tightening of policy later, they added.