The pound fell yesterday following the Bank of England’s decision to raise UK interest rates by 50 basis points. This brought the rate to 1.75% and was the largest hike in almost 30 years. Sterling has made a slight recovery this morning but remains pressured.
Speaking after the interest rate decision, BoE governor Andrew Bailey defended the large hike, saying there was a “real risk” of high prices becoming “embedded” and not “coming down in the way that we would otherwise expect”.
Bailey also warned that the UK will likely enter a recession in the final quarter of 2022 that could last until the end of 2023. He hinted that another 50 basis point interest rate hike may be necessary in September.
Amid a flurry of reactions to the hike, Tory leadership finalist Liz Truss pledged to use an emergency budget, arguing that a recession is “not inevitable”. Rival Rishi Sunak argued Truss’s “unfunded” tax cuts would just add “fuel to the fire” of inflation.
In the data world today, US non-farm payrolls and unemployment data are likely to be the ones to watch and will give an indication of how the US economy is faring.
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