The prospect of improved yield support will help curb the negative impact of recession fears

In the latest quarterly report, the Bank of England increased its inflation forecasts compared with the February release. The bank warned that inflation was liable to remain above the 3.0% level for several months and could increase to a peak around 4.0% compared with the official 2.0% target.

There was also a downgrading of growth forecasts and Bank Governor King was notably pessimistic over the economic prospects. The commentary suggests that the bank will look to cut rates no more than once over the next six months in order to curb inflation which will reinforce Sterling’s yield support.

There will also be some further speculation that the Bank of England will not cut rates any further this year. Overall confidence in the economy will, however, tend to deteriorate which will certainly limit any currency support as recession fears intensify.

Sterling was generally under pressure against the Euro, but found some support below 1.94 against the dollar. The UK currency was subdued and little changed in early Europe on Thursday with overall sentiment still very fragile.