(Updates with further context)
By Harry Robertson
LONDON, Dec 19 (Reuters) - The pound slipped on Thursday after the Bank of England held interest rates but three policymakers voted to lower borrowing costs, denting a rebound against the dollar as markets swung in the wake of the Federal Reserve's decision on Wednesday.
British government bond yields also reversed course slightly, as the six-three vote surprised investors who had been expecting only one official to opt for a reduction.
The BoE held its main rate at 4.75% but Deputy Governor Dave Ramsden and external members Swati Dhingra and Alan Taylor voted for a 25 basis point (bp) cut to 4.5%.
BoE Governor Andrew Bailey said the central bank needed to stick to a "gradual approach" to cutting rates, citing uncertainty about the economy.
The pound was last up 0.2% at $1.2603, having risen as much as 0.7% earlier in the day as it recovered from a sharp drop in the previous session.
The U.S. Fed cut interest rates on Wednesday but policymakers said they now envisage just two rate cuts next year instead of the previous four, sending the dollar surging and the pound down more than 1%.
Britain's 10-year government bond yield fell slightly after the BoE decision and was last up 2 bps at 4.584%, from 4.6% before the decision.
British bond yields rose on Thursday before the BoE decision, reflecting a jump in U.S. government yields overnight. Yields move inversely to prices.
"There is a very decent case for a (BoE) rate cut and the market pricing has become more hawkish," said Chris Scicluna, head of economic research at Daiwa Capital Markets.
"The UK economy is behaving far more like the euro zone economy than the U.S. one. The UK economy is flatlining and that suggests the monetary policy stance is too tight."
The UK's FTSE 100 was last down 1.1%, having traded around 1.4% lower before the BoE's announcement, after a sharp overnight sell-off in U.S. stocks.
Mid-sized companies on the FSTE 250 index also perked up somewhat, with the gauge last down 1%.
Policymakers in Britain have been focused on underlying price pressures, which many see as still too strong.
Data this week showed growth in UK wages sped up in the three months to October and inflation rose to an eight-month high of 2.6% in November.
Yet growth has stalled. Data last week showed Britain's economy shrank for a second month in a row in October.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic: World FX rates in 2023 Graphic: Trade-weighted sterling since Brexit vote
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Harry Robertson; additional reporting by Dhara Ranasinghe; Editing by Peter Graff and Dhara Ranasinghe)
((harry.robertson@thomsonreuters.com))
Comments