Following a positive morning the pound sank yesterday afternoon, despite the Bank of England both raising interest rates for the twelfth time in a row, and upgrading its growth forecast by the largest amount in the Monetary Policy Committee’s 26-year history.
Sterling ended the day around a third of a percent down against the euro, having strengthened to a fresh 2023 high earlier in the day. Against the US dollar the pound fell by nearly 1%.
After yesterday’s interest rate rise, this morning we have heard the UK’s latest GDP figure, which showed that the economy grew by 0.1% in the first quarter of 2023. While the 0.3% drop in March was larger than expected, it was explained away by the wettest March for decades, plus several strikes.
Yesterday the Bank of England upwardly revised both its inflation prediction (it will stay higher for longer) and its growth forecast. It has dropped its prediction of a recession and now expects the economy to be 2.25% larger in three years’ time than it had been predicting, with lower unemployment expectations too.
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While the good news on the economy was welcome, Bank of England governor Andrew Bailey nevertheless faced hostile question over the persistently high food inflation and the effect on households of both that and yet another interest rate rise. He rejected the notion that food sellers were overcharging, pointing out that energy is a big part of food costs and producers have understandably bought supplies in advance due to issues arising from the war in Ukraine. “But, as we said before, we are in very unusual times,” he said.
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