"Inflation hasn't come down sufficiently, the labour market continues to be tight and wage growth is still accelerating so we think the BoE will be inclined to go with another 25 basis point hike in May," said Danske Bank FX analyst Kirstine Kundby-Nielsen.
In an interview published late on Friday, BoE deputy governor Dave Ramsden said the central bank needed to focus on tightening monetary policy sufficiently to control inflation. Economists polled by Reuters expect the BoE to raise rates by a further quarter point on May 11 to 4.5%, in what would be its 12th consecutive rate rise since starting to increase interest rates in December 2021. Traders meanwhile fully price in a 25 basis point hike at the May meeting.
At 1040 GMT, the pound was flat against the dollar at $1.2448. It hit its highest level since June last year at $1.2545 on April 14. Sterling has been one of the best performing major currencies in 2023, having risen more than 20% against the dollar since hitting an all-time low in September last year.
Ratings agency S&P Global revised up its outlook for Britain's sovereign credit rating on Friday, removing the "negative" label which it applied after September's "mini-budget" under then-Prime Minister Liz Truss. The rating was retained at AA.
The euro was up 0.1% against the pound to 88.43 pence.
"Our profile is for euro-sterling to remain around the 88 level," Danske Bank's Kundby-Nielsen said.
"But we could see some sterling weakness against the euro
next week if the ECB (European Central Bank) hikes by 50 basis
points," she added.
Markets currently expect the ECB to raise rates by 25 basis
points next week, with around a one-in-three chance of a larger
50 basis point hike.
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(Reporting by Samuel Indyk; Editing by Alex Richardson)
