LONDON Britain's economy is likely to remain broadly flat in the near term but inflation would probably exceed 2 percent in the next year or so, minutes to the BoE's December 5-6 meeting showed on Wednesday.
The Monetary Policy Committee's decision this month to keep its main interest rate at a record-low 0.5 percent and its bond purchases at 375 billion pounds had been widely expected, as stubborn inflation trumped worries about a sluggish economy.
David Miles continued to be the only MPC member to support another expansion of the central bank's asset purchase program, arguing that there was enough slack in the economy to allow a boost to output without extra inflation.
"Most members agreed that developments on the month had done little to alter the balance of arguments between maintaining and increasing the size of the monetary stimulus," the minutes said.
In November the BoE agreed to return to the finance ministry coupon payments on the gilts it had bought so far, saying the transfer would be equivalent to more than 35 billion pounds' worth of monetary easing.
However, in the minutes central bankers said the monetary impact of the transfer would be slightly smaller in the very short term than initially assumed, because it had led to a reduction in the issuance of Treasury bills rather than gilts.
"The committee agreed that an early understanding of the government's gilt issuance plans for the 2013-14 financial year would be helpful for its monetary policy decisions," they said.
British inflation held at 2.7 percent in November, its highest since May, confounding forecasts for a dip, official data showed on Tuesday.
The BoE said on Wednesday that inflation was likely to remain above its 2 percent target for the next year or so, though food prices could be driven up by bad weather disrupting planting.
Economic output was likely to be broadly flat in the near term, but there would probably be a contraction in the fourth quarter.
Last week MPC member Paul Fisher told Reuters he would wait for signs that inflation was coming down before voting to extend quantitative easing, though he added that more gilt purchases would probably be needed to keep policy accommodative.
And BoE chief economist Spencer Dale has warned that inflation was unlikely to fall back to the central bank's 2 percent target for some time, and the BoE's own forecasts do not see inflation below 2 percent until the third quarter of 2014.
Economists polled by Reuters do not expect any change in interest rates until then, and put the chance of more asset purchases at just 40 percent.
(Reporting by Olesya Dmitracova and David Milliken)