LONDON--Bank of England officials are worried that a strengthening pound risks prolonging a spell of ultra-low inflation in the U.K., a development that could put a brake on interest-rate increases expected to begin early next year. Minutes of officials' March policy meeting record the nine-member Monetary Policy Committee were concerned that sterling's recent ascent may continue, due in part to the European Central Bank's decision to embark on large-scale asset purchases to revive growth and stoke inflation in the neighboring 19-nation currency union. Sterling rose 2.5% against the currencies of the U.K.'s main trading partners in March and 4% against the euro, and the BOE's market contacts suggested the gains would have been greater still were it not for uncertainty over the outcome of May's U.K. general election, according to the minutes, published Wednesday. "Although monetary policy at home and abroad was only one of the many factors that influenced the exchange rate, especially in the near term, there was a risk that divergent monetary policy trends, as well as stronger prospects for growth in the United Kingdom than in the euro area, might continue to put upward pressure on the sterling exchange rate," the minutes record. A stronger pound risks bearing down on the price of goods and services imported into the U.K., potentially prolonging the period at which annual inflation remains below its 2% target, the panel concluded. Annual inflation was just 0.3% in January and is expected to dip below zero in the coming months before rising back to target over the next two years. The BOE's concerns underscore the potential pitfalls facing central banks as their economic fortunes diverge. The U.S. and the U.K. are inching towards raising borrowing costs on the back of strong recoveries, while the ECB and monetary authorities in much of Asia are loosening policy to shore up growth. Investors expect the BOE to begin raising interest rates in the U.K. in early 2016, according to interest-rate derivatives that hug the BOE's benchmark rate. The MPC voted unanimously in March to leave the BOE's benchmark unchanged at 0.5%, the minutes record.

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