The Bank of England raised rates by 50bps to 2.25% on Thursday, meeting economist expectations and providing little relief for sterling that traded at 1.1306 against the dollar.
Signalling a willingness to hike rates further in coming meetings, 3 of the 9 Monetary Policy Committee voted for a 75 bps hike, but this was not enough to see a strong rebound in sterling.
Sterling had hit the lowest levels since the 1980s on Thursday after the Federal Reserve hiked rates overnight. Following the Fed hiking by 0.75%, the big driver in GBP/USD was a strong dollar sparked by a shift in the outlook for US rates.
“Looking ahead, the US central bank raised its medium-term expectations for federal funds rates, now predicting that they will hit 4.4% by the end of this year and 4.6% by the end of 2023 against previous guidance of 3.4% and 3.8%,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
Despite the hike in UK rates, the outlook for the UK economy and strength in the dollar is likely to put pressure on GBP/USD for sometime to come.
This was highlighted by former Bank of England voting member Danny Blanchflower who called the new UK Prime Ministers proposals ‘disastrous’ and said traders should ‘short the pound’.
Done many interviews & written several columns on @trussliz and her disastrous economic policies so far I have said they are in ‘total disarray’ but seems inadequate as pronouncements get worse daily I have never in my fifty years of doing economics seen anything as bad as this
— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) September 20, 2022