The Bank of England left UK interest rates on hold at 0.5% today, as it warned that a British exit from the European Union would create extended uncertainty and likely hurt the economy in the short run.
Experts are now predicting rates to stay at 0.5% until 2017, with some envisaging a rate rise to come sooner if Britain votes to stay in the European Union.
The bank has been in no hurry to raise rates, with inflation remaining historically low and way off the UK government's 2% target.
Meanwhile, the Bank of England warned that a British exit from the European Union would create extended uncertainty and likely hurt the economy in the short run.
This is according to minutes from the bank's latest policy meeting, published today.
It was the strongest warning yet from the body that sets UK interest rates and comes two days after the International Monetary Fund said the world economy could suffer if Britain votes to leave the EU in a referendum on June 23.
"Such a vote might result in an extended period of uncertainty about the economic outlook, including about the prospects for export growth," the Bank's Monetary Policy Committee said in minutes from their April 13 meeting.
"This uncertainty would be likely to push down on demand in the short run...and have significant implications for asset prices, in particular the exchange rate," the committee added.
For the first time, UK rate setters said that they had seen signs that the upcoming vote was affecting business decisions, with a striking fall in commercial property sales, delayed investment and fewer company listings.
"This might lead to some softening of growth in the first half of 2016," they said.
Bank of England Governor Mark Carney has described Brexit as the biggest domestic financial stability risk.
He has highlighted the gains from an open trading relationship with the EU, drawing criticism from pro-Brexit lawmakers, despite the BoE's formal neutral stance.
The minutes build on these comments from Carney, based on clearer evidence about the effect the referendum debate is having on the British economy.
The nine members of the Monetary Policy Committee were unanimous in their view that interest rates should stay at their record low 0.5% and a range of views about the outlook remained.
Policymakers said they would react more cautiously to economic data around the referendum.
UK inflation touched a 15-month high last month of 0.5%, while the core inflation measure closely watched by the Bank of England hit 1.5% - its strongest since October 2014 and above all forecasts in a Reuters poll.
But the bank said it expected inflation to recede this month as an Easter surge in airfare prices fades, adding that growth in unit wage costs was below levels consistent with meeting its 2% inflation target.
The Bank of England reiterated that interest rates were more likely to rise than not over the next three years and that when they did the rise would be gradual, given likely headwinds.
Financial markets have fully priced out the possibility of an interest rate hike this year prior to the BoE meeting and some are even betting the first move will be a cut.
The consensus of economists polled by Reuters shows the first interest rate hike in the first quarter of 2017.