The bank comments will maintain generally weak Sterling sentiment in the short term, although heavy selling looks unlikely from current levels

Sterling pushed to highs above 2.01 against the dollar in early Europe on Wednesday, but then weakened sharply following the latest official comments. The UK currency also dipped to lows near 0.7880 against the Euro.

Bank of England chief economist Bean stated that the risks to Sterling are on the downside while there is liable to be further depreciation of the currency with the bank’s forecasts based on a gradual weakening.

Bank Governor King took a generally firm stance on inflation, but also hinted that the bank was more likely to cut interest rates due to the tightening of credit conditions and evidence of a slowdown. The comments from Bean suggest that the Bank will not be overly concerned over gradual Sterling depreciation, especially as the weaker currency will support exports. This is significant given the fears over the current account deficit.

Overall, there will be increased expectations that the bank will cut interest rates at the April MPC meeting.