LONDON: Sterling bounced from near 5-1/2 year lows against the dollar and a one-year trough versus the euro on Thursday after the latest Bank of England meeting minutes showed an 8-1 vote to keep interest rates unchanged.
Before the minutes were released, there was speculation that policymaker Ian McCafferty might change his vote for an immediate hike given the ructions in global markets, with sliding oil prices and subdued economic data in Britain.
But he kept his vote unchanged.
The minutes showed policymakers expect the recent plunge in oil prices will weigh a bit on British inflation in the coming months but said it remained unclear if the impact would be lasting.
Sterling staged a minor relief rally, after a brutal sell off since the start of the year, inching up to $1.4425 from around $1.4386 beforehand, up 0.1 percent on the day. It had fallen to $1.4360 earlier in the day, not far from $1.4352 struck on Tuesday, its weakest since June 2010.
The euro eased to 75.70 pence, having hit a one-year high of 76.06 pence earlier in the day.
"An unchanged voting pattern and reassuring comments from the Bank of England brought a much needed interruption to sterling selling," said Richard de Meo, managing director of Foenix Partners, which offers currency hedging solutions to UK firms.
The pound had fallen sharply earlier this week after data showed British industrial output suffered its sharpest fall since early 2013 in November. That added to doubts about the strength of Britain's economy and encouraged bets that the BoE would not raise interest rates any time soon.
After the data, JP Morgan joined other big banks in pushing back forecasts for the first rise in UK interest rates since the financial crisis, saying it would not come before the end of this year. Investors are pricing in the chance of a rate hike in early 2017, having factored in early last week the chance of a move in late 2016.
"The minutes signalled the MPC are more sanguine about the outlook for the UK economy than the market was expecting and may provide some respite for sterling in the days ahead," said Andy Scott, economist at HiFX, a provider of foreign exchange services.
"In the current environment however, with investors becoming increasingly worried about the impact of the slowdown in China, concerns over the UK economy and the risk of a 'Brexit' look likely to continue to haunt sterling."
Concerns about a referendum on Britain's membership of the European Union have weighed on sterling in recent weeks. Prime Minister David Cameron has promised a referendum by the end of 2017, though it may come as early as June this year. With the outcome unclear, investors are bracing for volatility.
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