Sterling down, bonds rise as Bank of England cuts inflation, growth forecast

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Economists had previously expected two rises in 2018 after the Bank's February forecasts, when Governor Mark Carney said rates would need to rise further and faster to rein in inflation.

Bank hints at future rate hikes, saying that it is ready to tighten policy going forward, if the economy grows as forecast.

Sterling is at risk of losing its status as one of the best performing G10 currencies this year, partly because investors have recently started betting on the dollar rising on the strength of higher interest rates.

That followed shock growth data released last month, which found overall GDP increased by just 0.1% in the first three months of the year, adding to the growing sense that the economy is struggling and pushing back expectations of a rate rise before the summer.

Carney said the bank's nine-member rate-setting body thinks the "underlying pace of growth remains more resilient than the headline data suggest".

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"As previously, however, that judgement relies on the economic data evolving broadly in line with the Committee's projections", it continued, suggesting that if the United Kingdom economy remains weak, rate hikes may not be on the table.

The pound has slipped after the Bank of England held interest rates and investors priced in a lower likelihood that there would be an increase any time soon.

Most economists polled by Reuters expect the BoE to vote 7-2 to keep rates on hold this month and not raise rates until August.

Last November, the bank raised its main interest rate for the first time in a decade, taking back the rate cut it enacted in August 2016, in the immediate aftermath of Britain's surprise vote to leave the European Union.

Today's main United States data will be high-impact inflation rate stats for April, out during the afternoon.

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Cheetham said that hike "now appears to have been more a case of a reversal of the post-Brexit cut rather than the beginning of a sustained cycle of interest rate increases".

Howard Archer, chief economic adviser at the EY Item Club, said: "Recent events have made an interest rate hike on Thursday seem progressively less likely - to the extent that it now looks a very long shot".

'Only one month ago, the markets were predicting a more than 90% probability of a United Kingdom interest rate increase this month.

In recent months, the prospect of an interest rate rise by the Monetary Policy Committee (MPC) has been considered an nearly sure thing.

Confirming a glum first quarter for the economy, industrial output barely rose in March, data showed on Thursday.

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Tensions within Britain's governing Conservative Party over how to agree terms of exit from the European Union have also re-emerged as a political risk for the pound.

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