Sterling has fallen this afternoon after the Bank of England painted a gloomy picture of the UK’s economic outlook at their latest rate-setting meeting.

As expected, they unanimously voted (9-0) to raise interest rates and hiked by 0.5% which takes the benchmark rate to 1.75%. This is now a record six meetings in a row where they’ve raised interest rates in a bid to cool spiralling prices. Their latest forecasts, however, warn of a dire economic outlook where they see inflation peaking at 13% (which would be a 42-yr high) and the UK moving into recession later in the year. They’re anticipating five negative quarters of growth from Q4 this year until the end of 2023 and therefore warning of the potentially longest recession since the global financial crisis of 2008.

The BoE governor Bailey downplayed expectations for a continuation of these aggressive rate hikes, which has caused a downward shift in market interest rate pricing and therefore reduced the appeal of Sterling to investors. They also expect unemployment levels, which has been relatively robust of late, to start to rise from next year. As with the Federal Reserve last week, it appears that future rate hike decisions will very much be taken on a meeting-by-meeting basis and that it will depend heavily on how the economic data is going. For the foreseeable though, it certainly doesn’t feel like the Pound will be getting any further policy tailwinds from the BoE and that it will need to find support from other areas.

As a result, the GBP/USD has lost a cent following the meeting and now trades at a 8-day low. The GBP/EUR is also down 1-cent and at a 9-day low. So, although we’ve seen a move in Sterling, it’s not been overly dramatic so far. However, this might just be the case the market is waiting to see how tomorrow’s key US non-farm payroll figure comes out before deciding on any potential bigger moves.

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