UK heading for recession, says the Bank of England

Daily Currency Update

The UK economy is heading for a recession, the Bank of England has said, as it raised interest rates to tackle the highest inflation the UK has seen in 40 years. A majority of the Bank’s nine-member monetary policy committee voted to increase the key base rate by 0.5 percentage points to 2.25%, which is its highest level since 2008.

With soaring energy bills and the rising cost of a weekly shop forcing households to rein in their spending, the Bank of England said the economy was heading for a second consecutive quarter of falling output, thus putting the economy into a technical recession.

Today we have chancellor, Kwasi Kwarteng, announcing the details of the government’s energy price guarantee and a package of sweeping tax cuts expected to cost more than £150bn to kickstart economic growth and shield households from soaring bills.

The pound has fallen below $1.12 against the US dollar, the weakest point since 1985, and has now lost 17% against the dollar so far this year. The decline is partly due to dollar strength, where the USD is at 20-year highs against a basket of currencies, due to worries about the global economy and the series of large interest rate hikes by the US Federal Reserve.