Martin Weale
MPC member Martin Weale has shifted to the no change side from hike vote citing downside risks to inflation Reuters

Sterling fell on Wednesday after the Bank of England said its 8 January decision to keep rates was unanimous, showing UK's inflation outlook was subdued enough to shift the two members who had been demanding a hike for the past months to the dovish side.

However, better than expected labour market numbers came in a separate release, at the same time, helped prevent sharper losses in the pound.

At 10:00 GMT, the GBP/USD pair was at 1.5100, after falling to as low as 1.5076 from the near 1.5160 following the release of the BoE minutes. The pair was slightly higher earlier in the day compared to the previous close of 1.5154 and hit an intra-day high of 1.5180.

"For the two members who had voted in the previous month for an increase in Bank Rate, the decision this month was finely balanced," the minutes showed.

"They noted the risk that low inflation might persist for longer than the temporary factors implied and concluded that this risk would be increased by an increase in Bank Rate at the current juncture."

Starting the August meeting, two of the nine-member BoE Monetary Policy Committee (MPC), Ian McCafferty and Martin Weale, have been voting for a hike in the Bank Rate even as the rest continued to support keeping the rates and the asset purchase target unchanged.

However, a shift in the pattern was likely, considering the disinflation trend in the UK, deflation risks in Eurozone, sharp slide in crude prices and weak outlook for global growth.

"The timing implied by overnight indexed swaps (OIS) rates of the first policy rate increase in the United Kingdom was now about 8 months later than that in the United States, and the date at which OIS rates reached 2% was around 8 years later," the minutes showed.

The MPC is concerned about decelerating inflation, the minutes showed.

"The recent pace of decline in all measures of inflation expectations, in the United Kingdom and internationally, especially as there could be more downside news on inflation to be digested. All members agreed that different measures of inflation expectations across major countries needed to be monitored closely in the months ahead."

Employment data

Meanwhile, data showed unemployment claims in the UK fell 29,700 in December when analysts were expecting a drop of 25,000. In auditor, the November drop was revised up to 29,600 from 26,900.

Also, the ILO unemployment rate for UK fell to 5.8% in the three months to November from 6% in the three months to October, beating market consensus of 5.9%.

The positive surprise in the jobs data probably helped prevent losses in the pound but failed to strengthen as the adverse impact of the dovish tilt in the MPC was even stronger.

The GBP/USD is now closer to the 8 January 17-month low of 1.5034 and break below seems likely. With next downside targets staying deep, the market seems to be waiting for the ECB policy review scheduled for Thursday, for another likely upward push for the greenback.

Charts show that the GBP/USD pair is testing a channel support currently, which if broken, the next support will be 1.4813, the 2013 low.

Further south, the pair will aim 1.4228 as a different channel support, ahead of lows below the 1.40 mark.