Pound recovers after Bank of England interest rate decision

Daily Currency Update

Yesterday saw the Bank of England raise interest rates for the fifth consecutive meeting to fight inflation that is at a 40 year high. The bank voted 6-3 in favour of lifting rates 0.25%, taking them to 1.25% with the minority wanting a hike of 0.5%. The markets had been expecting a rise of 0.5% so when 0.25% materialised the pound fell across the board. GBP/USD dropped over a cent to bottom out at 1.2040 before recovering. GBP/USD touched 1.24 yesterday evening as investors focused on the fact that the BoE will be continuing to raise rates and that could include a 0.5% hike at its next meeting. It should be noted that the BoE has never raised rates by more than 0.25%, so yesterday’s outcome wasn't a complete surprise. As mentioned throughout the week, members of the Monetary Policy Committee face a tricky task of trying to bring prices rises under control whilst not pushing the economy into recession. A period of flat lining growth or a small contraction should assist in bring inflation down, however the BoE needs to avoid taking too severe action that could send the UK economy into a deep recession. GBP/USD is now trading around 1.23 with GBP/EUR just under 1.17.