UK interest rates reach 3%, the largest increase in 33 years

GBP

Sterling fell against its peers on Thursday despite its largest single interest rate increase for thirty-three years, as the Bank of England warned of a deeper recession than previously thought and cautioned markets that it would unlikely raise interest rates to 5%.

The BoE increased interest rates by 75 basis points to 3%, an increase of 2.9% from the year previous and its highest interest rate for fourteen years. The decision to hike by 75 basis points was supported by seven voting members of the committee whilst two members opted for lower hike (25 bps and 50 bps).

The bank acknowledged that further rate hikes may be required, but crucially, stated that the central bank was unlikely to hike as much as markets are forecasting. Prior to the meeting, markets had forecasted the UK interest rate to peak at 5.25% in 2023. This sent Sterling tumbling.

Sterling was also dealt a blow following the concerning economic projections issued by the bank. According to the BoE, the economy is set to contract 1.9% in 2023, a bigger contraction than the bank’s last forecast of 1.2% issued in August. Added to this, the BoE sees unemployment increasing to 4.9% from 4.7%.

Key announcements

09:00 – EUR – ECB President Lagarde speaks

12:30 – USD – Non-Farm Payrolls