Sterling faces a volatile outlook, with the Bank of England having a greater impact on foreign exchange than the European Central Bank

Foreign exchange options investors expect the near-term impact of the Bank of England's interest rate decision on sterling to be greater than the impact of the European Central Bank's rate hike on the euro later on Thursday.

Both central banks are expected to raise base rates by 50 basis points on Thursday, but the international monetary fund expects Britain to be the only G7 country to see its economy contract this year, with market rates showing the pound more volatile than the euro.

An indicator of the expected movement of two currencies in the coming day shows a 73% probability that the pound will trade within a 300-point range during this time, compared to 242 for the euro.

David Forrester, senior currency strategist at Cre ́ dit Agricole in Singapore, said: "Recent weak UK cyclical data has increased the likelihood that the Bank of England will raise interest rates less than expected, so options markets are digesting this risk."

At the Bank of England's December meeting, the MPC split into three parties on the decision. Six members, including Governor Andrew Bailey, voted for a 0.5 percentage point increase. One member, Catherine Mann, supported a 75 basis point increase, and two members, ilvana Tenreyro and wati Dhingra, supported keeping rates unchanged.

Of the 46 economists who finished the survey, 11 forecast a 25 basis point rise by the Bank of England and the rest a 50 basis point rise. Adding to the uncertainty, the Bank of England is likely to release forecasts on Thursday highlighting the risk that inflation, which has remained stubbornly above 10 per cent in the UK despite falling to 8.5 per cent in the eurozone last month, will become more persistent.