BoE keeps eye on pound as recovery broadens

Overall it said the market impact of the Ukraine tensions was smaller than might have been expected, but it said sterling could strengthen further if Britain's growth prospects improved or those elsewhere in the world weakened.

Stronger sterling would tend to reduce inflation in Britain, it added, but the scale of the impact was hard to judge as the MPC expected companies to use some of the lower cost of imports to increase profit margins.

Some MPC members have expressed greater concern about sterling's impact on exports in separate public comments.

Deputy governor Charlie Bean said last week that the BoE could keep interest rates lower for longer if sterling strengthens much more, adding that its current level was "fine". (Full Story)

And Monetary Policy Committee member Ian McCafferty said in an interview with Reuters last month that further strength in sterling would be a worry. (Full Story)

The MPC were also unsure on how much scope Britain's economy had to grow without generating inflation. Unemployment rose in the fourth quarter of 2013 and much of the gain in employment had been in the self-employment sector - suggesting there could be more untapped capacity.

But many young people who gained jobs were in low-productivity jobs, reducing the apparent degree of capacity in the labour market.

"Members of the committee attached different weights to the pieces of evidence regarding the degree of spare capacity in the labour market," the minutes said.

The minutes noted no other differences among the MPC members, who voted unanimously to keep interest rates at a record low 0.5 percent.

Financial markets have pointed to spring 2015 as a potential time for the first rate hike.

Output is still just below its peak in the first quarter of 2008 - a much weaker recovery from the financial crisis than in most other big advanced economies. The BoE is concerned that low productivity may limit Britain's ability to catch up without generating higher inflation in the medium term.

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