The Bank of England (BoE) met for its first monetary policy meeting of the year on Thursday and voted 8-1 to hold rates at a record low of 0.5 percent, in line with expectations.
It also left its £375 billion ($540 billion) asset purchase program, designed to stimulate lending and growth, untouched. However, sterling rose after the decision with the dissenting voice at the central bank failing to fall in line with the rest of the policy making committee.
"Ian McCafferty preferred to increase bank rate by 25 basis points, given his view that the path of domestic costs was more likely to lead to inflation exceeding the target in the medium term than was embodied in the committee's collective November projections, the statement read.
Sterling saw a boost on the news and rose to session highs of 1.442 against the dollar from lows of 1.436.
In the statement, the bank noted that inflation would take longer to rise to target levels and highlighted that wage growth remained slow in the U.K. "Despite continued reductions in the rate of unemployment, pay growth remains restrained and appears to have dipped slightly in the most recent data," it said.
It also said that the 40 percent decline in oil prices meant that the increase in inflation "is now expected to be slightly more gradual in the near term" than forecast in the committee's November Inflation report projections.
Analysts were expecting a dovish stance from the bank as global market uncertainty, growth concerns and the oil price plunge call for caution. Oil prices have continued to fall, with benchmark Brent crude even falling below the $30 a barrel mark overnight, a 12-year low. In addition, since the bank's last meeting global markets have been unsettled by vol–––atility in China where a sell-off in equities is taking place amid fears of a slowdown.
David Tinsley, U.K. Economist at UBS, told CNBC that the bank's latest announcement showed that it was being cautious.
"My interpretation of that statement is that it's very much a holding exercise," he told CNBC Thursday.
"They're going to re-appraise the situation in the February inflation report but also perhaps it's a gentle reminder to markets that the idea - as markets are pricing the first rate hike as off the radar right now – perhaps (the bank) is a little bit uncomfortable with that because there is still some domestic strength in the economy and the oil price will have an expansionary effect down the track," he added.
U.K. growth and employment is robust and most analysts think a rate hike will come later in the year. Against such a background of uncertainty, however, analysts said to expect more dovishness from the BoE – for now.
Jacob Nell, chief U.K. Economist at Morgan Stanley, told CNBC that despite McCafferty's repeated call for a rate hike, "the loudest voice in the MPC discussions is the voice of Mr data."
"We get a slew of data next week including labor market and inflation data and that's going to be the key for the message we get in the February inflation report," he said.
"At the moment, the market's pushing out the first hike to the first quarter next year and a lot of economists pushed out their lift-off call to November -- the other side of the Brexit referendum (the in-out vote on EU membership) -- but i still think that U.K. inflation story has got enough strength in it to give them comfort to get the core group over the line for a hike in May although that call is looking a little challenging at the moment."
UBS' Tinsley also agreed that a rate hike could come as soon as May.