The Bank of England kept interest rates on hold after last month’s emergency cut, but said a further reduction was still on the cards despite signs of a bounce-back in the economy.
Minutes of the latest Monetary Policy Committee (MPC) meeting showed members voted unanimously to keep rates at 0.25, after last month’s dramatic cut from 0.5% - the first since 2009.
Policymakers said the immediate impact of the Brexit vote on the economy was not quite as bad as first feared.
The MPC said it expects “less of a slowing in UK gross domestic product (GDP) growth” in the second half of 2016.
But it added the economy was still set to suffer a “material slowing” in growth, with internal estimates suggesting growth will slow to between 0.2% and 0.3% in the third quarter.
This will be a sharp slowdown on the 0.6% growth seen in the previous three months, but still not as bad as the Bank had feared in its August forecasts, when it said growth was set to flatline between July and September.
It said recent closely-watched industry data suggesting that major sectors of the economy rebounded strongly in August had been stronger than expected and were “consistent with somewhat less of a slowing in near-term GDP growth”.
The Bank’s economic stimulus action last month had helped boost markets and financial asset prices more than expected, according to the minutes.
House prices and consumer spending have also held up surprisingly well, the minutes added.
Official figures out separately showed retail sales falling by a far less-than-predicted 0.2% month-on-month in August, while they leapt by more than 6% year-on-year.
The Bank said in its MPC minutes it was also now expecting a smaller rise in inflation over the second half of 2016, with inflation holding steady at 0.6% in August.
But the Bank is still pencilling in a rise to around its 2% target during the first half of 2017.