Sterling kicks off BoE week higher, shrugs off banking crisis fears

By Joice Alves

LONDON (Reuters) - Sterling rose on Monday ahead of a key Bank of England (BoE) rate decision and inflation data due this week, while the Swiss government-backed takeover by UBS of Credit Suisse failed to soothe market nerves, weakening the dollar.

Global financial markets continue to be rattled by the collapse of some regional U.S. banks and the troubles of larger Swiss lender Credit Suisse.

With UK inflation data on Wednesday expected to show some easing and amid the global financial market instability, money markets are pricing in a 50% chance of no interest rate hike by the BoE on Thursday and the same chance of a 25 basis-point increase.

Sterling was 0.5% up on the U.S. dollar to $1.2240 after briefly touching its highest level against a weakening greenback in more than one week. It was flat against the euro at 87.55 pence.

Jeremy Stretch said inflation will give further clues but he still expects a 25bps rate hike by BoE. "This comes as the BoE remains of the view that the banking sector remains well capitalized. The combination of factors suggests recent GBP resilience is set to remain in place," he said.

Economists polled by Reuters expected the year-on-year CPI inflation figure to fall to 9.9% in February from 10.1% in January.

Goldman Sachs said it sees no economic growth in Britain this year and no longer expects the BoE to hike its policy rate in May, leaving its terminal rate forecast for BoE at 4.25%.

UK politics is also in focus. A member of the British parliament for Northern Ireland's Democratic Unionist Party said he would vote against a central element of the government's recent deal with Brussels on post-Brexit trade rules and he expects his colleagues to do the same.

British lawmakers will debate on Wednesday the so-called "Stormont brake", a key part of the deal announced last month that enables Britain to stop new European Union laws from applying to goods in Northern Ireland if so requested by a third of lawmakers in the province's devolved legislature.

(Reporting by Joice Alves; Editing by Hugh Lawson)