London: The Bank of England on Thursday kept its key interest rate at a record low 0.1 percent, but signalled a probable hike in the coming months to dampen soaring inflation.
Following a regular meeting, the BoE also said in a statement that it was maintaining its vast stimulus programme supporting the pandemic-hit UK economy with cash totalling almost £1.0 trillion ($1.4 trillion, 1.2 trillion euros).
Market expectations had been for an increase in borrowing costs this month to tackle runaway prices that are plaguing economies worldwide.
The pound slumped 1.0 percent against the dollar after the BoE announced its decision.
However, the BoE said it would "likely be necessary" to have "some modest tightening of monetary policy" to bring down inflation.
Policymakers "judged that... it would be necessary over coming months to increase" the main rate to bring UK annual inflation back down to the central bank´s target of 2.0 percent.
Consumer price inflation -- which currently stands at 3.1 percent -- was "now expected to peak at around 5.0 percent in April," the statement said.
For its part, the British government is forecasting an annual average rate of 4.0 percent over the next year after energy costs soared and reopening economies suffer from supply shortages.
The BoE decision comes one day after the US Federal Reserve said it would start reducing the pace of its stimulus bond purchases later this month as the US economy makes a solid recovery from the pandemic.
But the Fed maintained its view that inflation is transitory and Chairman Jerome Powell said the US central bank "can be patient" about raising interest rates.
The European Central Bank and Bank of Japan are holding fire for now on rates and stimulus, but central banks in countries such as Brazil, Singapore, South Korea and New Zealand have all increased borrowing costs recently.
The Bank of Canada has ended its significant bond-buying stimulus programme, and has flagged an interest rate hike earlier in 2022 than envisaged.
European Central Bank President Christine Lagarde on Wednesday said that despite a current surge in prices, the outlook for eurozone "inflation over the medium term remains subdued".
She said that the ECB was "very unlikely" to raise its interest rates even next year.
In the UK, the economic outlook remains unclear after the British government in September ended its furlough support scheme that kept millions of private-sector workers in jobs during the coronavirus pandemic.
The government of Prime Minister Boris Johnson predicts that the UK economic recovery will slow slightly next year.
As the pandemic erupted in March 2020, the BoE slashed its key interest rate from 0.75 percent and also began pumping massive sums of new cash into the economy.
It has created £450 billion under its quantitative easing programme since March last year, when Britain imposed its first coronavirus lockdown.
Prior to that, it had pumped hundreds of billions of pounds worth of QE into the UK economy over a decade following the global financial crisis and Brexit. The central bank´s total emergency stimulus package stands at £895 billion.