The BoE MPC's first meeting of the year produced few surprises. Bank Rate was again left at the 5.25 percent level to which it was raised back in August last year, matching a strong market consensus. However, the voting pattern will boost speculation that interest rates will be cut sooner rather than later. In December, Jonathan Haskell, Catherine Mann and Megan Greene all wanted another 25 basis point tightening but this time not only did Megan Greene follow the majority but the main dove, Swati Dhingra, wanted a 25 basis point ease.

Similarly as expected, there was nothing new in terms of QT, the MPC simply re-affirming its aim to reduce the stock of gilts held in the Asset Purchase Facility by £100 billion to £658 billion over the 12 months that began in October. At end-January, the overall stock stood at £738.0 billion, comprising just under £737.6 billion of gilts and £0.4 billion of sterling non-financial investment-grade corporate bonds.

For most MPC members, policy was thought to have been restrictive enough to weigh on activity and was leading to a looser labour market. Risks to the bank's new inflation forecast were seen better balanced than in November albeit still on the upside over the first half of the projection period. However, although services price inflation and wage growth had fallen more than had been expected, key indicators of inflation persistence remained elevated. Indeed, two members thought underlying inflationary pressures were still strong, particularly from earnings where growth was still well above levels compatible with meeting the 2 percent CPI target.

Against this backdrop, the MPC judged that monetary policy would need to remain restrictive for sufficiently long to return inflation to target sustainably in the medium term. The view since last autumn had been that monetary policy needed to be restrictive for an extended period of time until the risk of inflation becoming embedded above target dissipated.

In sum, today's statement and minutes underline a still very high level of uncertainty about the inflation outlook meaning that for policy, data dependency will remain key. In particular, there remain significant concerns about inflation persistence. However, overall there appears to have been a slight dovish shift that should leave investors expecting the first cut in Bank Rate next quarter.

Having paused for three straight meetings, the Bank of England is expected to hold policy steady again this month.

The Monetary Policy Committee (MPC) of the Bank of England (BoE) comprises nine experts, five of which are senior central bank executives and the other four are external members appointed by the Chancellor of the Exchequer. The MPC previously announced its monetary policy with regard to interest rates and any unconventional policy instruments every month but this was changed when the meeting schedule was truncated to eight a year in 2016. With a view to enhancing policy transparency, as of August 2015 the minutes of the MPC's deliberations, which indicate how each member voted, have been released alongside the policy announcement. Forward guidance was introduced in August 2013 but since then its framework has become increasingly qualitative and now provides only limited information about where policy might be headed.

The Bank of England determines interest rate policy at their Monetary Policy Committee meetings. These meetings currently occur during the first week of each month and are an influential event for the markets. Prior to each meeting, market participants speculate about the possibility of a change in the benchmark Bank Rate or unconventional monetary instruments. The MPC may or may not issue a post-meeting statement explaining its decisions in addition to the discussion’s minutes which, since August 2015, have been released alongside the policy announcement. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching. In the middle month of each quarter, the Bank publishes its Inflation Report, which provides a detailed analysis of economic conditions and the prospects for economic growth and inflation agreed by the MPC. This is now made available at the same time as the policy announcement and release of the minutes.

The Bank's monetary policy objective is to deliver price stability - low inflation - and, subject to that, to support the Government's economic objectives including those for growth and employment. A remit announced by the Chancellor in March 2013 hinted that the real economy may have a larger say in policy decisions going forward. Price stability is defined by the Government's medium-term inflation target of 2 percent, as measured by the annual change in the consumer price index. The foundation of the Bank's policy is the recognition of role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The Government's inflation target is announced each year by the Chancellor of the Exchequer in the annual Budget statement.

As in the United States, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on British markets - and to some extent those in Europe - can be dramatic and far-reaching. The interest rate set by the Bank of England, serves as a benchmark for all other rates. A change in the rate translates directly through to all other interest rates from gilts (fixed interest government securities named after the paper on which they were once printed) to mortgage loans.

The Bank of England sets an interest rate (Bank Rate) at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.