The pound fell against the dollar ahead of the Bank of England’s interest rate decision on Thursday, but exchange rates suggest that markets still expect a no-deal Brexit to be avoided.

Sterling fell 0.25 per cent against the dollar to $1.29 and was flat against the euro at €1.14.

Daniel Trum, chief investment officer at UBS Global Wealth Management said the pound could plunge to $1.15 and close to parity with the euro in the event of a cliff-edge Brexit.

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“Our base case remains that Prime Minister Theresa May will eventually squeeze a deal through parliament that results in an orderly Brexit,” Mr Trum said.

“The next key date is 14 February, when parliament, May has indicated, will have another chance to vote on her deal.”

Theresa May flew to Brussels on Thursday to push for concessions from EU leaders on the divorce deal agreed them last year.

With just 50 days to go until Brexit and no deal yet agreed, sterling is trading significantly above where analysts forecast it will fall to if the UK crashes out of the UK.

The Bank of England’s Monetary Policy Committee is expected to keep interest rates at 0.75 per cent when it publishes its latest decision on Thursday.

But all eyes will be on the BoE’s report published at midday which includes its economic growth predictions.

The BoE looks set to trim its forecasts for Britain’s already sluggish economy amid continuing uncertainty around Brexit and signs of a global slowdown.

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In November, the Bank said it expected Britain's economy would grow by 1.7 per cent a year in 2019, 2020 and 2021.

The BoE has signalled it could raise rates if the UK avoids a no-deal Brexit. Any rise would increase borrowing costs for those on flexible mortgages.

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