Bank of England holds rates at 0.75 percent

Chart showing EUR  USD

Exerting further pressure on Sterling was a change in the bank's forward guidance, with policymakers hinting a rate cut could be on the cards if Brexit uncertainty persists.

The bank's Monetary Policy Committee (MPC) warned in its last rates decision over the damage being inflicted by "entrenched" Brexit uncertainty.

The new forecasts, which assume that Britain leaves the European Union with a deal on January 31, contrasted with the Bank of England's (BoE) prior predictions of 1.3 percent for both years.

And in an unexpected sign of discord within the bank, two members of the monetary policy committee voted to lower interest rates.

"The message from the BoE is pointing to the downside for sterling", said Neil Jones, head of hedge fund currency sales at Mizuho bank in London. They also softened their language on the need for limited and gradual rate hikes in the medium term, saying they "might" rather than "would" be necessary.

"This will no longer go ahead as the Cabinet Secretary has concluded that this would not be consistent with the Cabinet Office's general election guidance, ” the Office for Budget Responsibility said in a statement".

Updated: The Pound to Euro (GBP/EUR) exchange rate fell sharply this afternoon in response to the Bank of England's latest rate decision.

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Michael Saunders and Jonathan Haskel, who voted for the cut, argued that the British economy had "a modest but rising amount of spare capacity" and that underlying inflation was "subdued". The 2022 growth rate is above Britain's long-term trend and would push inflation back above the BoE's 2% goal, the central bank said.

Any deal would have led to a cut in growth forecasts, but increased certainty will help to drive a near-term pick-up in investment growth, the bank added.

The forecasts, published Thursday, mark the first time the central bank has assessed Prime Minister Johnson's Brexit plan, which it said would create new barriers to trade with a bloc that now buys around half of United Kingdom exports.

They also said there were risks that economic growth could disappoint due to the impact of a weaker global outlook and persistent Brexit uncertainties on spending by businesses and households.

The yield on the benchmark 10-year gilts, jumped 2 basis points to 0.738 percent, the 30-year yield surged 3 basis points to 1.264 percent and the yield on the short-term 2-year edged tad 1 basis point up to 0.551 percent by 10:45GMT.

The bank said growth has been volatile this year in part because of Brexit preparations.

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