LONDON: Sterling gave up earlier gains on Thursday, as the Bank of England predicted a sharper rebound in the British economy thanks to easing COVID-19 restrictions but said it needed clear evidence of a recovery before tightening policy.

The BoE also announced a modest slowdown in its bond-buying stimulus and said this “should not be interpreted as a change in the stance of monetary policy”. The pound struggled to digest the BoE announcements, dropping initially before rising on the bond-buying slowdown and then weakening again. By 1600 GMT, sterling was 0.2% weaker at $1.3883 and down 0.6% versus the euro at 86.79 pence.

Two-year British government bond yields initially fell towards a two-week low, but then rose back to stand 1.1 basis point higher on the day. Britain’s relatively successful COVID-19 vaccine rollout has allowed the economy to reopen faster than many had expected and with consumers and businesses stocked up on cash saved during the pandemic, economists are hiking their growth forecasts. The BoE said it now forecast economic growth of 7.25% in 2021, up from a 5% growth forecast in February, while predicting that inflation would remain contained even with the accelerating recovery.