British Pound (GBP) tanks as Bank of England raises interest rate highest in 33 years: Warns of longest recession in history

Key Takeaways:

  • The British Pound (GBP) fell another 2% against the United States Dollar (USD)
  • The Bank of England raised its benchmark interest rate by 0.75%, the largest since 1989
  • Recession in the country is expected to stretch well into 2024
The British Pound (GBP) fell further 2% against the USD as the Bank of England raised interest rate by 075% & warned of a longest recession
The British Pound continues to fall as the Bank of England raises the benchmark interest rate by 0.75 points. Photo by Towfiqu barbhuiya 

YEREVAN (CoinChapter.com) — The Bank of England raised its benchmark interest rates by three-quarters of a percentage point on Thursday. This is its biggest hike since 1989 as the country braces for the most prolonged recession in its history. The British Pound (GBP) slid further against the United States Dollar upon news of the interest hike. 

Bank of England warns of the longest recession in history

Amid rising inflation and economic downturn, the Bank of England warned of more challenging days ahead. According to its predictions, the United Kingdom is facing the longest recession since records began. 

According to the apex bank, the country’s economic downturn will extend until 2024, with growth continuing to fall along the way. The unemployment rate in the UK will also double to 6.5% within the next two years, according to Central Bank.

The Bank of England has warned the UK is facing its longest recession since records began.
The Bank of England has warned the UK is facing its longest recession since records began.

Andrew Bailey, the Central Bank’s Governor, described the prospect of the UK’s economy as “very challenging.

“Inflation is too high, and it’s the bank’s job to bring it down. If we do not act forcefully now it will be worse later on,” 

Bailey said. 

The two-year recession predicted by the Bank of England will be longer than the one that followed the global financial crisis of 2008. 

Despite the damning predictions, 7 of the 9 members of the Central Bank’s Monetary Policy Committee (MPC) voted in favor of the biggest increase in rates since 1989. Inflation in the country hit 10.1% in September and is expected to reach 11% in October. 

The 0.75 percentage points hike puts the current interest rate in the country at 3%, up from the previous 2.25%. The move followed similar rate hikes by European Central Bank last week. 

As CoinChapter earlier reported, the US Federal Reserve also pushed interest rates up by 0.75 points. This was preceded by a 50 basis point increase by the Bank of Canada

This is the eighth consecutive rate hike by the Bank of England. To cough up funds, the Bank of England also sold an additional £750 million (about $859 million) of short-term government debt on Tuesday. 

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British Pound (GBP) continues to fall as the Bank of England raises interest rate

Following the largest rate hike and troubling predictions, the British Pound Sterling took further blows. GBP dropped another 2% against the United States Dollar, falling to $1.11 against the strengthening USD. Additionally, it fell 1.3% against the Euro. 

The British Pound (GBP) has fallen nearly 4% against the United States Dollar USD in the last five days as the Bank of England raises interest rate
The British Pound (GBP) has fallen nearly 4% against the USD in the last five days. Credit: Google Finance

The latest dip takes the year-to-date fall against the USD to a whopping 17.43%. However, this may not be the end of the dismal drop. 

According to economists, the worst days for the British Pound are yet to come. 

“Our view since March has been that the Euro (white) will fall substantially – we expect it to reach 0.90 this winter – and we think British Pound (orange) will fall lots more also. ECB and BoE won’t be able to hike nearly as much as markets price given looming, deep recession,”

 Robin Brooks, Chief Economist at the Institute of International Finance claims

Meanwhile, inflation in the country continues to remain well above the 2% that the Bank of England set for itself. 

With the global economy in turmoil fueled by the Russian invasion of Ukraine, Europe is in for an expensive, cold winter. 

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