The Bank of England warned signs of a new year slowdown in growth were emerging as it capped a dramatic year for the UK economy by keeping interest rates on hold.
Policymakers said while growth had been "remarkably steady" since the Brexit vote shock, cracks were starting to show in the business sector as firms put investment decisions on hold.
All nine members of the Bank's Monetary Policy Committee (MPC) voted to keep rates at 0.25% in the last decision of the year.
It comes after the US Federal Reserve hiked rates last night for the first time since December 2015 and signalled three more rises in 2017 as America's economy continues to strengthen.
Britain's economy is expected to grow by 0.4% in the fourth quarter, down from 0.5% in the previous three months, according to the Bank.
But minutes of the meeting confirmed growth in 2017 was set to falter, with recent surveys highlighting uncertainty among businesses ahead of the Brexit negotiations.
"Forward-looking components of business surveys were weaker than those regarding current output," according to the MPC minutes.
"Some slowing in activity was therefore in prospect during 2017," the MPC added.
Sterling slid sharply against the dollar to 1.24 on the news, down 0.7% on the day and extending falls from Wednesday when the US Federal Reserve hiked rates, causing the greenback to spike.
The Bank said the recent strengthening in the pound, which had risen by around 6% since November, meant inflation may not rise as sharply as it forecast in its last quarterly report.
But it warned inflation was still set to race higher in 2017 and 2018 as the weak pound pushes up prices, adding sterling was set for "month-on-month" volatility as the UK's Brexit plans evolve.
Consumer Prices Index inflation (CPI) surged to a two-year high of 1.2% in November in a sign that the pound's sharp fall since the referendum is beginning to impact prices.
The Bank predicted in November that CPI will jump close to 3% in 2017, while influential think-tank the National Institute of Social and Economic Research has said it could hit almost 4% next year.
But in minutes of the latest rates decision, the Bank said the pound's recent strengthening "would result in a slightly lower path for inflation than envisaged in the November Inflation Report, though it is still likely to overshoot the target later in 2017 and through 2018".
The Bank said consumer spending was holding up well, while the housing market remained resilient.
Figures out separately from the Office for National Statistics showed retail sales rose by 0.2% month-on-month in November.
The Bank halved the base rate in August as part of a mammoth economy-boosting package of measures and said more cuts were on the cards, though it has since rowed back on this as growth has proved better than expected.
Growth of 0.5% in the third quarter confounded expectations of a sharp slowdown from the 0.7% seen in the previous three months.
It saw the Bank scrap plans for more rate reductions at its November meeting and raise growth forecasts for this year and next.
But this cheery outlook was overshadowed as it sent out a warning shot to households over soaring inflation.
Experts fear this will bring an end to the consumer spending surge that has helped prop-up growth since the referendum.
In an open letter to the Chancellor explaining why inflation currently remains below the 2% target, Bank governor Mark Carney said the MPC would look through the upcoming CPI overshoot.
He said action to bring down inflation would otherwise lead to "lost output and higher unemployment".
He added the MPC's aim was to ensure inflation returned to target in a "suitable manner".
The Bank will next decide on interest rates on February 2, when it also releases its next quarterly inflation report.
Most economists expect the Bank to keep rates on hold throughout 2017, but the outlook is more difficult to judge, given the complexities of the EU Brexit talks and volatility of the pound.
Some experts believe another rate cut may still be on the cards.
James Knightley, senior economist at ING, said: " Brexit-related uncertainty is leading to big falls in business surveys regarding investment and hiring plans. At the same time rising inflation is squeezing household spending power and the slowdown in job creation is adding to uncertainty for consumer spending.
"This combination of weakness from both the household and corporate sectors poses downside risks to growth next year. This will reduce inflation pressures in the medium term so we still think that a rate cut is more likely than a rate hike."