Sterling slipped against the dollar on Thursday, with some traders disappointed the Bank of England stuck to its view that interest rates were likely to rise only gradually despite above-target inflation and progress in Brexit talks. The BoE said in a statement that last week's breakthrough in Brexit talks has reduced the risk of Britain leaving the European Union in a disorderly way and might boost economic confidence. But it also said only modest increases in Bank Rate, currently 0.5 percent, would be warranted over the next few years.
"The BoE seems to be firmly in a wait-and-see approach," wrote RBC strategists in a note to clients. "We think that the BoE will be happy to tread carefully on monetary policy and we maintain our call for the Bank Rate to remain unchanged at 0.50 percent next year." Sterling slipped to as low as $1.3398, having earlier hit a nine-day high of $1.3467. Against a weaker euro, the pound inched up 0.1 percent to 87.99 pence.
"Given there is this mood that 2018 might be a year when central banks might turn a bit more hawkish, there was a bit of a hawkish expectation today," said Rabobank currency strategist Jane Foley. The BoE's monetary policy committee last month voted 7-2 in favour of raising rates by a quarter of a percentage point, and maintained a forecast that the economy would grow 1.6 percent next year - slightly faster than expected by the government and most economists polled by Reuters.
Since then, inflation has risen to its highest since March 2012 at 3.1 percent. The BoE says this overshoot is almost all due to sterling's fall after June 2016's Brexit vote, and it expects inflation to fall slowly next year. But some investors had expected the inflation overshoot - as well as progress on Brexit - to drive a more hawkish tone from the BoE.
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