Sterling fell after the Bank of England’s resounding interest rate hike, the biggest since 1995, in its attempt to tame inflation that is expected to exceed 13% in the coming months.
In particular, the BoE raised its interest rate by 50 basis points to 1.75%, while warning that the British economy is on the brink of a long recession.
Immediately after the rate hike, sterling turned lower, falling 0.2% to 1.2122 against the greenback, erasing a 0.3% rise to $1.2184 recorded shortly before the BoE’s announcement. Sterling is also down 0.5% against the euro.
The Bank of England has warned that the country’s economy will begin to contract in the last quarter of 2022, a trend that will continue throughout 2023, making the coming recession the longest since the one that followed the financial crisis of 2008- 2009.
At the same time, he estimates that inflation is likely to peak at 13.3% in October – which will be the highest level since 1980 – mainly due to the increase in energy prices caused by Russia’s invasion of Ukraine.
In her previous estimates, she spoke of peak inflation above 11% and almost zero economic growth until at least 2025.
Source: Capital
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