Sterling hits one-week low after BoE trims inflation forecasts

LONDON: Sterling hit a one-week low against the dollar on Thursday after the Bank of England's inflation report showed interest rates were unlikely to rise within the next two years.

Although the BoE said it might need to raise interest rates before the late 2019 date market pricing indicated, that was nine months later than its February forecasts showed.

The BoE's Monetary Policy Committee (MPC) voted 7-1 in favour of keeping interest rates on hold at their record-low 0.25 percent this month, quashing some bets that a second official would also support a rise.

Sterling, earlier trading at $1.2920, fell to a one-week low $1.2853 after the Bank's release, down 0.6 percent on the day.

It also hit the day's low of 84.51 pence per euro, down from 84.13 pence earlier and half a percent lower on the day.

Dealers attributed sterling's dip to some expectations more policymakers would vote for a rate rise.

"Should another MPC member have joined Kristin Forbes in voting for a rate hike, then we could have seen sterling/dollar finally crack 1.30 after falling short a couple of times over the past week," said Jake Trask, corporate dealer at OFX.

"Some were expecting either Michael Saunders or Ian McCafferty to break ranks."

Apart from the votes remaining unchanged, the Bank's trimming of its UK growth forecasts hit the pound, said Peter Ashton, managing director at Eiger FX. "But a more positive economic forecast in the longer term could see sterling bounce back once markets drill down into the detail," he said.

Earlier on Thursday, data showing weaker-than-expected industrial output and a widening of Britain's trade gap also weighed on sterling, which has struggled to break past the "psychological" $1.30 mark this week.

BoE Governor Mark Carney said sterling's appreciation since Prime Minister Theresa May announced a June 8 snap election last month possibly reflected market expectations of a more orderly Brexit. Carney also said volatility is quite low in financial markets, but closer to historical averages in sterling markets.

Diminishing global market volatility and a lack of new developments on Britain's talks on leaving the European Union have kept the pound steady since it gained 3 percent after May's announcement.