LONDON — The Pound sterling Thursday sank against the American dollars after the UK’s central bank said it expected a recession to last all of 2023 and the first half of 2024.
The pound was trading at $1.1162 at 1.20pm London time, its lowest level since Oct. 21, after starting the session at $1.1418 and falling in the morning.
He came like the Bank of England raised rates by 75 basis points to 3% on his biggest hike in 33 years.
But he also said he expected rates to peak at a level below what financial markets are currently pegged at around 4.6%.
“The majority of the Committee believes that, if the economy evolves broadly in line with the latest projections in the Monetary Policy Report, further increases in the Bank Rate may be necessary for a sustained return of inflation to target, although than at a lower peak than expected in financial markets,” its statement said.
BOE Governor Andrew Bailey told a news conference after the announcement that this was “important because, for example, it means rates on new fixed-term mortgages shouldn’t have to increase as they did”.
“It’s not the first time the pound has fallen in reaction to a BoE rate hike this year,” Jane Foley, head of currency strategy at Dutch bank Rabobank, said in comments by post. electronic.
“In May the pound fell after a 25bps rate hike as expected and in August the pound fell after the Bank raised rates but simultaneously warned of a 5 quarter recession from of the fourth quarter of 2022.”
“With regard to the UK economy, Bank staff now expect GDP to contract by 0.5% in the third quarter of 2022, 0.9 percentage points less than forecast in the report. on August monetary policy.”
“Essentially, the Bank also warned that the upward move in rates would be ‘to a peak below that set in financial markets’. So there was very little on the part of the Bank to prevent the pound sterling down.”