Sterling cements rebound as BoE rate cut hangs in the balance

• The British pound held on to its recent recovery on Thursday.
• Sterling slipped 0.1% to $1.3128 in early London trading on Thursday.
• The trigger for Wednesday's rally was the latest Confederation of British Industry survey that reported a pick-up in manufacturers' sentiment.

LONDON: The British pound held on to its recent recovery on Thursday as investors weighed up whether the Bank of England would cut interest rates next week.

Money markets are now pricing in a slightly more than 50% chance of a 25 basis point rate cut, down from 70% earlier in the week, after a several surveys pointed to a possible upturn in the British economy that BoE policymakers had recently said appeared absent.

Purchasing managers index surveys due on Friday should help investors to decide whether the BoE will press ahead with a rate cut or whether they will wait for further evidence on the economy's performance following a general election in December. Britain leaves the European Union at the end of this month.

Sterling slipped 0.1% to $1.3128 in early London trading on Thursday, but it remained some way off the $1.2962 levels it traded at on Monday.

Against the euro the pound edged 0.1% lower to 84.475 pence but held on to most of its gains notched up on Wednesday.

The trigger for Wednesday's rally was the latest Confederation of British Industry survey that reported a pick-up in manufacturers' sentiment, adding to signs of improved confidence in the UK economy.

"It is now up to the BoE to decide whether they want to allow more time to assess whether the UK economy rebounds as expected before deciding on providing more stimulus, or to pull the trigger now to help reinforce the expected recovery," said MUFG analysts in a note, describing the BoE's decision as a "genuine toss up".