The Bank of England cut its forecasts for British economic growth over the next three years and cautiously backed market expectations that it will only start to raise interest rates in around a year's time.
The Bank of England now expects economic growth this year of 2.4%, it said in its quarterly Inflation Report.
This is down from a 2.9% projection in February and closer to most other economic forecasters' expectations.
Britain was the fastest growing of any major advanced economy last year, as it made up ground lost during the financial crisis.
Bank of England Governor Mark Carney said inflation was likely to pick up later this year.
"Although it could temporarily turn negative in the near term, inflation is expected to pick up notably towards the end of the year as past falls in prices drop out of the annual comparison," he said, speaking at a press conference.
"The MPC (Monetary Policy Committee) expects the past falls in commodity prices to be relatively short-lived and will therefore look through them in setting policy," he said.
UK economic growth slowed at the start of 2015 and Prime Minister David Cameron's newly elected Conservative government faces a major challenge to set it on a more sustainable path.
The Bank of England said its growth downgrade was due to the fact that interest rates were likely to increase faster than markets had expected three months ago, as well as due to a stronger currency and a weaker outlook for house building and productivity.
After saying in April that the pace of rate rises priced in by markets was unusually slow, policymakers now appear more happy with what markets have priced in since.
"A path that implied only gradual rises in Bank Rate over the next few years, broadly in line with the current market path, remained consistent with absorbing slack and returning inflation to the target within two years," the bank said said.
The Bank of England's forecasts are based on market pricing for interest rates to rise from their record-low 0.5% in the second quarter of next year - three months earlier than expected in February - and to average 0.9% in the last three months of 2016.
The bank has kept UK interest rates unchanged for more than six years.
However, policymakers said they were still concerned about the very limited increase in global interest rates priced in by bond markets in the longer term.
Global bond yields have increased sharply since the MPC's May 8 meeting, as investors respond to rising oil prices and the increasing likelihood of US interest rates rising.
The Bank of England said that it expected British inflation, which currently stands at a record-low 0%, to return to its 2% target in two years' time, little changed from its forecast three months ago.
But as well as cutting 2015's growth forecast, the bank also lowered projections for 2016 and 2017 to 2.6% and 2.4% respectively.
"Growth is forecast to be at or a little below its historical average rate throughout the forecast period," the Bank of England said.
Growth could be slower due to increased risks of economic problems coming from Greece, it added.
The UK central bank also cut its forecast for wages, saying they will have risen 2.5% by the end of this year compared with an earlier forecast of 3.5% growth, before wage growth picks up to 4% next year.