The Bank also expects the economy to grow more than previously forecast this year, although uncertainties remain because of the Iran war.
The Bank last cut interest rates in December but upheaval in the Middle East has stalled any further reductions.
The Bank of England has kept borrowing costs unchanged but opened the door to cuts later this year.
The decision to lower borrowing costs was widely expected, after inflation slowed in the year to November.
Rates are left unchanged after a tight vote ahead of the Budget later this month.
The Bank of England governor warns "we're not out of the woods yet" in terms of rising inflation.
Rates are now at their lowest since March 2023 even though inflation is well above target.
The central bank decides to hold interest rates at 4.25% with inflation remaining above its target level.
The Bank cuts rates for the second time this year, saying the slowdown in inflation was behind the move.
