The U.K. currency dropped after the Bank of England kept its benchmark interest rate unchanged and said its asset purchase facility program will be maintained.
In a widely-expected decision, the benchmark interest rate was left at 0.50%, which has been held at that level since March 2009.
The central bank also said it would maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
The minutes from the lender showed that eight members voted for leaving the key interest rate unchanged at a record low of 0.5%, - unchanged from the previous meeting.
Dissenting member Ian McCafferty voted for a 0.25% hike in the benchmark rate to 0.75% for the third consecutive month. All nine members voted to keep the central bank's £375 billion asset-purchase program unchanged.
The majority of officials said underlying price pressures “were not strong enough to justify” tightening. Most economists expect the BOE to begin slowly raising interest rates in mid-2016.
The Bank has cut its inflation forecasts. It now expects the Consumer Prices Index to remain below 1% until the second half of 2016, far from the official target of 2%.
The Bank has also released a letter from BOE governor Mark Carney to chancellor George Osborne, explaining why he hasn’t managed to keep inflation on target.
In the letter, he blames international factors such as cheaper oil and metals, the strength of sterling (pushing down the cost of imports) and limited earnings growth (although real wages are finally rising). The strong pound will continue to pressure on inflation and this effect will only slowly fade. Carney told Osborne that inflation should start to pick up, from zero, in early 2016
GBP/USD last traded at 1.5287 from around 1.5389 ahead of the announcement, while EUR/GBP was at 0.7116 from 0.7065 earlier.
