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LONDON: Sterling fell sharply on Thursday as the Bank of England left its main interest rate unchanged after sending over the past few weeks a series of signals suggesting it intended to increase rates in an effort to contain growing inflation.

The BoE kept interest rates at its all-time low of 0.1%, dashing investors’ expectations for a hike to 0.25% that would have seen it become the first of the world’s big central banks to raise rates after the COVID-19 pandemic.

Seven of the nine member of the Policy Monetary Committee voted to hold off a rate rise for now so they could see how many people became unemployed following the recent end of the government’s job-protecting furlough scheme.

But the BoE kept alive the prospect of tighter monetary policy soon, saying it would probably have to raise the Bank Rate “over coming months” if the economy performed as expected.

Sterling was down 1% versus the dollar at $1.3555 at 1315 GMT, its lowest level in more than a month, after touching a weekly high during Asian trading hours.

Versus the euro, the pound fell 0.6% to a month low of 85.32 pence.

“Markets are feeling a bit of whiplash after the hawkish guidance and now see the BoE standing back,” said Grace Peters, EMEA head of investment strategy at JPMorgan Private Bank. Dean Turner, economist at UBS Global Wealth Management, added that the sterling slide will be capped by ongoing expectations that the BoE is still set to become the “first mover in the tightening game and this should underpin sterling which we expect to hold ground against the US dollar over coming months”.

But markets sharply cut back their expectations of rate increases from the BoE, and are now expecting 97 basis points in rate hikes until next November compared with 120 bps in cumulative rate increases expected at the start of the week, according to Refintiv data. Sterling has fallen 2.5% versus the dollar over the past three months, with several signals by the BoE suggesting it will raise rates only moderately supporting the currency as Britain faced a crisis over fuel and shortages of workers.

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