Sterling bundles
Sterling bundles Reuters

Sterling has been hovering near a seven-month low against the dollar as the Bank of England (BoE) prepares for its September policy decision.

The UK currency dropped near two-week lows against the Swiss franc and the euro. The European Central Bank is also due to announce rates on Thursday, 45 minutes after the BoE.

At 7:00 GMT, the GBP/USD traded at 1.6451, just 10 pips above the seven-month low the pair touched on Wednesday. The EUR/GBP was at 0.7986, near the 12-day low of Wednesday.

The pound fell to a new two-week low of 1.5100 against the Swiss franc on Thursday.

The rate announcement is scheduled at 11:00 GMT.

The market will be eager to know the deliberations at the Monetary Policy Committee's (MPC) meeting which will be available only in the minutes to be released two weeks later.

At Thursday's meeting, the MPC will have to review a set of mixed data that came after the 7 August policy decision including lower than expected consumer price inflation and an upside surprise in the second quarter GDP data.

The purchasing managers' indices continue to show up in the expansion territory for the UK, with the latest readings for construction and services also beating analysts' estimates.

Retail sales figures for July had disappointed but the GfK consumer confidence rebounded more than expected in August.

Recent Data

The UK economy expanded 3.2% from a year earlier in the three months to June, while analysts were expecting an unchanged reading of 3.1%. On quarter, the GDP growth was 0.8%, in line with expectations.

The consumer price inflation slowed to 1.6% year-on-year in July from 1.9% in the previous month against a consensus of 1.8%.

The GfK index bounced to 1 for August from -2 in July when the consensus was for -1. Retail sales growth slowed to 2.6% in July from 3.4% in the previous month trailing market expectations of a 3% growth.

On 1 September, Markit Economics said the UK manufacturing PMI fell to 52.5 for August from 54.8.

However, the construction and services data came on 2nd and 3rd September showed the indices rising to 64.0 from 62.4 and to 60.5 from 59.1, respectively.

Vote Split Last Time

The MPC voting pattern of the 7 August meeting happened to be a big surprise when the meeting minutes were released on 20 August as two members had favoured a hike.

The market is not expecting the hawks in the committee to outnumber the doves anytime soon and therefore the decision on Thursday will be to keep the bank rate at 0.5% and the central bank's asset purchase target at £375bn.

At the same time, any change in the pattern this time will be of significance for the market participants. Even if the number of hike supporters is still at two, it may be slightly pound-supportive, analysts say.

What Surveyors Say

According to GfK NOP, the measure for the general economic situation of the UK during the last 12 months has increased six points to -1 in August, up 28 points from August 2013.

Expectations for the general economic situation over the next 12 months have increased two points to 11, which is up 12 points from a year earlier, the surveyor said.

Markit Economics and CIPS (Chartered Institute of Purchasing & Supply) said business activity in the UK service sector increased at its fastest rate since about a year during August as market conditions remained favourable and new business growth healthy. But the think tank said the outlook is not bright.

"The UK service sector grew at its fastest rate for ten months in August but reductions in confidence combined with capacity pressures mean that growth may be close to peaking," said David Noble, the group CEO of CIPS.

"The outlook is not as bright as previous months, as a mixed bag of concerns, principally over how robust the business pipeline will continue to be, resulted in confidence declining to a 15-month low."