The outlook for sterling took a hit on Wednesday, after it emerged the two remaining hawks on the Monetary Policy Committee reversed their stance and voted to hold interest rates at 0.5 per cent at the latest meeting.

By 10:30am sterling was down 0.26 per cent on the dollar at 1.6415 and 0.46 per cent on the euro at 1.1369, but by midday the currency had regained its losses against the greenback and reduced those against the single currency to sit at 1.6462 and 1.1378 respectively.

Following the departure of arch-hawk Andrew Sentance, the case for tightening monetary policy lost significant steam, and with this latest development the chances of a rate hike in the near term have been given a crushing blow.

Martin Weale and Spencer Dale had previously voted for a 0.25 per cent rise to the base rate, which placed them as moderate hawks beside Sentance's call for a 0.5 per cent hike.

The minutes from the meeting, held a fortnight ago, also revealed that some MPC members had considered the case for more quantitative easing.

On Tuesday, higher-than-expected inflation acted as a boon for the pound, as traders hoped it might influence the Bank of England (BoE) to consider a rate hike sooner rather than later.

But the BoE has long maintained that a rise in the Consumer Prices Index (CPI) measure of inflation to 5 per cent by the end of the year will only be temporary.

So unless inflation rises significantly beyond that level, or sticks there for a prolonged period, the bank is unlikely to change its stance.

Jonathan Granby, researcher at DailyFX, says: 'The move comes as the central bank adopts something of a wait-and-see stance as recent events weakened the case for removing stimulus. The minutes reiterated sentiment from the quarterly inflation report [released last week] that the euro-area debt crisis poses the greatest threat to the UK economy.'

Concerns over the global slowdown that have been evidenced in recent months is likely to see MPC members more open to the possibility of further asset purchases.

Member Adam Posen has been alone in voting for a £50 billion extension to quantitative easing for many months now.

At the latest meeting, however, the MPC conceded 'further asset purchases might nonetheless be warranted were some of the downside risks to materialise'.

Capital Economics UK economist, Samuel Tombs, says: 'Note too, the MPC's meeting on 4 August was before most of the recent turmoil in stock markets, so it seems unlikely that Dale and Weale will shift their votes back to higher rates any time soon. And while the continued rise in inflation this year may prevent the MPC from extending quantitative easing in 2011, we continue to think that further asset purchases are likely in 2012.'

Outlook for the pound

The long-term effect on the pound will not be overly bearish, according to Richard Driver, currency analyst at Caxton FX.

'In truth, bets on a near-term BoE rate hike were pretty much non-existent and expectations for a move early next year were sparse. The minutes just confirmed suspicions that the MPC will remain dovish for the foreseeable future,' he says.

Jamie Jemmeson, trader at Global Reach Partners, is in agreement: 'Should this stance be maintained, the damage to the pound will be limited. The global economic slowdown is affecting most developed nations and we should see interest rate cuts from the eurozone, Canada, Australia while interest rates in the US will remain on hold.'

But Granby thinks the outlook for the pound is more murky: 'The idea of further easing from the BoE is likely to send bulls running for the exits and the lack of hawkish sentiment in the minutes will also spook those betting on some rate hike action in the near term.'