Bets on interest rate futures suggested investors had pushed back their expectation for the first BoE rate hike by four months to December next year, RBC Capital Markets said.
It blamed the overshoot on the effects of the referendum-related falls in sterling. "With more people taking on larger loans, an interest rate rise will be felt first in this segment of the market".
United Kingdom inflation is forecast to rise further in the coming months, peaking around 3% in October before gradually dropping to 2.2% over the three-year forecast.
Matthew Brittain, investment analyst at Sanlam UK, said: "This marginally more dovish sentiment has no doubt been helped by the departure of long-time hawk Kristin Forbes, and puts the BoE firmly back on track to its "slow and steady" normalisation approach".
His wary tone about Brexit prompted an angry response from a leading supporter of last year's Leave campaign.
The Bank also kept its asset purchase programmes unchanged and said a bank lending scheme would end as previously scheduled in February 2018.
While on balance these incentives more than offset the drag from continued uncertainties around Brexit, business investment is still likely to grow below historic averages with adverse consequences for productivity, capacity, and wages, Carney says.
Inflation stood at 2.6% in June and the Bank expects the rate to remain above the 2% target throughout the three-year forecast.
The pound advanced to 1.3164 versus the greenback, 1.2739 against the franc and 0.9026 against the euro, from its early lows of 1.3128, 1.2713 and 0.9048, respectively.
The bank said that growth is likely to remain sluggish because the salaries paid to workers aren't going as far as they used to.
The Bank also downgraded its growth forecasts for the United Kingdom, from 1.9% to 1.7% for this year, and said growth would then slow to 1.6% in 2018, down from its previous 1.7% projection.
While the Bank's growth outlook remains similar to its previous forecast in May, the central bank's forecasters have again reduced their outlook for 2017 growth.
"The loss in real income as a result of the depreciation in sterling may also lead to some people wanting to work longer hours to make up that loss", the bank's inflation report said.
Pound/dollar immediately fell upon the decision announcement and extended its losses as Governor Carney was talking, falling to as low 1.3111.
Policymakers also voted to withdraw part of the mammoth economy-boosting package unleashed a year ago in the aftermath of Brexit.
Given the current political and economic uncertainty, it is clearly not a question of if, but when will rates eventually rise, which will have implications for homeowners, as highlighted by Richard Sexton, director, e.surv.
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