Bank of England's Monetary Policy Committee May minutes: the referendum on Britain’s membership in the European Union is the main risk to the outlook

The Bank of England's Monetary Policy Committee (MPC) released its February meeting minutes on Thursday. All members voted to keep the central bank's monetary policy unchanged.

The consumer price inflation in the U.K. was 0.5% in March, below the central bank's 2% target. The BoE noted that inflation was driven by a drop in energy and food prices, adding that this effect would dissipate over the next year and inflation would reach the 2 % target by mid-2018.

The central bank said that Britain's economy slowed in the first quarter and was expected to decelerate in the second quarter as uncertainty around Britain's membership in the European Union (EU) weighed on the economy.

The BoE noted that the domestic private sector remained resilient, while consumer confidence was robust.

All MPC members agreed to hike interest rate gradually once the BoE starts raising its interest rate and "to a lower level than in recent cycles".

The BoE also said that the referendum was the main risk to the outlook.

"A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise. At the same time, supply growth is likely to be lower over the forecast period, reflecting slower capital accumulation and the need to reallocate resources. Sterling is also likely to depreciate further, perhaps sharply," the central bank noted.