The British pound edged lower against the U.S. dollar on Thursday as investors awaited the outcome of the Bank of England’s (BoE) policy meeting, where the central bank is widely expected

to announce a rate cut.

Markets have priced in a 94% probability that the BoE will lower interest rates by 25 basis points to 4.5%. However, investors do not anticipate a second rate cut until June. The central bank will also release its latest economic projections alongside its decision.

Sterling was down 0.2% against the dollar at $1.2478, retreating from a four-week high of $1.255 reached the previous day. Against the euro, the pound slipped by less than 0.1% ahead of the BoE’s announcement.

Concerns over a sluggish British economy persist, but inflationary pressures remain elevated, limiting the central bank’s flexibility in easing policy.

"While the Monetary Policy Committee may wish to cut rates more aggressively, persistent inflation does not allow for that just yet. This will also likely prevent any dovish shift at this stage," said Michael Brown, senior research strategist at Pepperstone.

Looking ahead, markets anticipate the BoE will implement three rate cuts in 2025, with a total of 82 basis points of easing expected this year.