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Sterling creeps lower vs dollar after BoE’s gloomy outlook
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LONDON (Reuters) – The British pound eased against the U.S. dollar on Friday, a day after the Bank of England (
LONDON (Reuters) – The British pound eased against the U.S. dollar on Friday, a day after the Bank of England (BoE) raised interest rates by the most in 27 years in an attempt to smother surging inflation but delivered a stark warning about growth.
The BoE lifted its main interest rate by 50 basis points to 1.75%, its highest since late 2008, but said the economy would slip into recession at the end of 2022 and not emerge until 2024.
Analysts predict that the gloomy outlook, coupled with the BoE’s resolve to fight inflation, which the bank expects to hit 13%, is likely to keep sterling under pressure.
“For the pound, that is not a positive when the central bank is raising rates into a recession as that raises the outlook for a sharp slowdown,” said Lee Hardman, currency analyst at MUFG in London.
“We remain bearish on the pound. But a lot of that is priced in and the pound is being driven by global risk sentiment.”
The pound was last trading down 0.1% against the dollar at $1.21385 after dropping as low as $1.2065 after the BoE’s decision on Thursday.
Against the euro, the pound eked out a 0.1% gain after a 0.64% drop on Thursday, its biggest one-day fall since June 14.
Market attention was now turning to Friday’s U.S. jobs report for hints about the state of the world’s largest economy and its labour market.
Economists expect an increase of 250,000 jobs for the month of July, after 372,000 were added in June.
(Reporting by Samuel Indyk, additional reporting by Dhara Ranasinghe; Editing by Kim Coghill)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation, and avoid deflation, to keep the economy running smoothly.
A recession is a significant decline in economic activity across the economy that lasts for an extended period, typically visible in GDP, income, employment, manufacturing, and retail sales.
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, managing monetary policy, and ensuring financial stability.
Interest rates are the amount charged by lenders to borrowers for the use of money, typically expressed as a percentage of the principal. They influence economic activity and inflation.
The foreign exchange market is a global decentralized or over-the-counter market for trading currencies. It determines the exchange rates for every currency.
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