Bank of England increases interest rates

GBP

Sterling was left to recover following the latest interest rate decision from the Bank of England yesterday. As expected, the central bank rose interest rates by their largest margin in 27 years (50bps) bringing the base rate to 1.75%. This is the largest hike since 1995. Eight of the nine members voted for a 50 bps rise, with the outlying opting for 25bps rise.

While this would normally be positive for the currency, comments and forecasts in the press conference following painted a bleak outlook for the UK economy. They expect, starting Q4 2022, 5 consecutive quarters of negative growth. This ultimately would mean a year-long recession. GDP is set to fall 2.1% overall, with a further fall of 1.5% in 2023 and 0.25% in 2024. Additionally, Inflation forecasts were also raised once again. It is expected that inflation will peak around 13% by Q4 2022 and remain elevated into 2023.

The bank also alluded to increased uncertainty over monetary policy action moving forward. They could not comment on forward guidance which signals uncertainty is still to come.

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