The Bank of England has warned the squeeze from Brexit-fuelled inflation on household income has begun and said growth would remain "moderate" after faltering at the start of the year.

The Bank of England (BOE) held interest rates steady at 0.25 percent, as expected, on Thursday while implementing some widely anticipated modifications to its growth and inflation assumptions over the three-year forecast horizon.

But Mr Carney warned that improving fortunes were based on a "smooth" adjustment when it came to European Union withdrawal that would see a transition period to avoid a cliff edge departure.

Mr Carney said consumers were beginning to feel the pinch as the pound's plunge since the Brexit vote has pushed up prices.

Despite first-quarter gross domestic product (GDP) coming in at 0.3 percent and undershooting the BOE's February estimate that the figure would hit 0.5 percent, the central bank's forecasters have only reduced the outlook for 2017 growth to 1.9 percent from 2.0 percent.

It is thought the Bank will make a marginal downgrade to its forecast for 2% growth this year after the first quarter disappointment, while it may also tweak its inflation forecasts higher.

The pound rose as much as 0.4% to US$1.2988, still stuck below the US$1.30 level, which analysts have said is a key "psychological" level for the currency.

Sterling, earlier trading at $1.2920, fell to $1.2872 after the decision. "There had also been evidence of a slowing housing market activity and prices, which, in the past had been accompanied by a softening in consumption growth", the minutes said.

Latest forecasts from the National Institute of Economic and Social Research predict inflation will peak at 3.4% in the final quarter of 2017, although it said the Bank would "look through" this and likely keep rates on hold for another two years.

Yet despite the slower near-term growth the Bank emphasised that bank rate, the interest rate available to other lenders, could rise "by a somewhat greater extent" than markets were pricing in, if its predictions of a continued pick-up in growth are accurate.

But as official data has soured since the start of the year, many economists expect tougher times ahead as Prime Minister Theresa May starts two years of fraught Brexit talks before the country leaves the European Union at the end of March 2019.

The MPC voted seven to one in favour of holding bank rate at 0.25 per cent, with Kristin Forbes the only dissenter. It may be the case that prices are running higher and growth is positive, but until wages at least keep up with the rate of inflation, the United Kingdom consumer will be getting poorer in real terms, posing a threat to any longer term recovery. The rise comes as markets prepare for this week's Bank of England (BOE) monetary policy meeting. That, in turn, could have a major impact on the British economy as a whole, which is highly reliant on consumer spending.

But the Bank's policymakers said weaker consumer spending would be offset by rising business investment and an improving trade performance as the weak pound and solid overseas demand boost exports.