Beautiful Virgin Islands

Tuesday, Jun 24, 2025

Sterling slumps as BoE warns of long recession

Sterling slumps as BoE warns of long recession

Sterling dropped sharply on Thursday after the Bank of England said borrowing costs were likely to go up less than markets expect and warned that the economy was heading for a protracted recession even as it raised rates by the most in three decades.
In unusually forthright language, the BoE pushed back against traders' expectations that interest rates were likely to rise to around 5% next year. This contrasts with the U.S. Federal Reserve, which hiked aggressively once again on Wednesday and said rates were not yet close to their peak.

The pound was already down around 1.2% against the dollar on Thursday after the Fed meeting but dropped sharply after the BoE decision and statement, at one point falling more than 2% to a low of $1.1157.

It was last down 1.67% at $1.12, putting it on track for its biggest daily fall since the British government's tax-cutting mini-budget on Sept. 23.

The BoE raised Bank Rate by 75 basis points (bps) in an effort to tame double-digit inflation, taking it to a 14-year high of 3%. It was the biggest rate hike since 1989, apart from a failed attempt to boost sterling on Black Wednesday in 1992.

In a highly gloomy message, the BoE said Britain - which is grappling with a sharp rise in energy and mortgage costs - has probably tipped into a recession. It said the downturn could cause the economy to shrink in both 2023 and 2024.

The euro rallied 1.15% against the pound to 87.16 pence.

Analysts said sterling was reacting to the much less aggressive tone of the BoE compared to the Fed, as well as the dire economic outlook.

"The story is definitely moving from central banks pivoting to central bank policy divergence," said Michael Quinn, senior trader at Monex Europe. "The fundamentals in the U.S. are certainly more robust and healthy than in Europe… It's a pretty grim scenario for sterling at the moment."

The Fed raised interest rates by 75 bps for the fourth meeting in a row on Wednesday. It took the target range to 3.75% to 4%, from just 0% to 0.25% in March.

Fed Chair Jerome Powell signalled that the central bank may step down the rate at which it raises borrowing costs. But he also said the peak in rates was likely to end up higher than traders expect.

In contrast, BoE Governor Andrew Bailey said on Thursday: "We think Bank Rate will have to go up by less than currently priced in financial markets."

The dollar index rose 0.56% to a two-week high of 112.77 on Thursday as investors reacted to the Fed's move.

Higher rates - or the expectation of them - traditionally boost a country's currency by making investments there look more attractive.

"While some central banks are saying they don't know how high rates will go, the BoE is saying the peak is lower than what the market is pricing," said Jan von Gerich, chief economist at Nordea. He said sterling was likely to face further pressure against the dollar.
Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Airlines Evaluate Flight Cancellations Amid Escalating US-Iran Tensions
Starmer Invites Innovators to Join Government Talent Scheme
UK Economy’s Strong Opening Quarter Shows Signs of Cooling
Harrods Seeks Court Order to Secure Al Fayed Estate for Victims
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
WATCH: Israeli forces show the aftermath of a massive airstrike at Iran's Isfahan nuclear site
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
We have new information and breaking details to share about what is shaping up to be a historic air campaign tonight
Six Massive Bombs Dropped on Fordow; Trump: 'A Historic Moment for the U.S., Israel, and the World'
Fordow: Deeply Buried Iranian Enrichment Site in U.S.–Israel Crosshairs
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Pakistan to nominate Trump for Nobel Peace Prize.
BBC Demands Perplexity AI Immediately Stop Using Its Content
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
Political Turmoil Resurfaces in Belgium Amid Economic Concerns
Fed policymakers divided on timing of interest rate cuts
Trump signals imminent agreement with Harvard University
Inheritance tax referendum alarms Swiss billionaire community
Japan cancels bilateral security meeting amid US defence demands
AI skeptic Emily Bender warns that ‘the emperor has no clothes’
Israel Confirms Assassination of Quds Force Commander in Tehran
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Iranian Military Officers Reportedly Seek Contact with Reza Pahlavi, Signal Intent to Defect
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Vietnam Emerges as Luxury Yacht Destination for Ultra‑Rich
Plans to Sell Dutch Embassy in Bangkok Face Local Opposition
China's Iranian Oil Imports Face Disruption Amid Escalating Middle East Tensions
Trump's $5 Million 'Trump Card' Visa Program Draws Nearly 70,000 Applicants
DGCA Finds No Major Safety Concerns in Air India's Boeing 787 Fleet
Airlines Reroute Flights Amid Expanding Middle East Conflict Zones
Elon Musk's xAI Seeks $9.3 Billion in Funding Amid AI Expansion
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
Israeli Airstrike Targets Iranian State TV in Central Tehran
President Trump is leaving the G7 summit early and has ordered the National Security Council to the Situation Room
Taiwan Imposes Export Ban on Chips to Huawei and SMIC
Israel has just announced plans to strike Tehran again, and in response, Trump has urged people to evacuate
Netanyahu Signals Potential Regime Change in Iran
Juncker Criticizes EU Inaction on Trump Tariffs
EU Proposes Ban on New Russian Gas Contracts
Analysts Warn Iran May Resort to Unconventional Warfare
Iranian Regime Faces Existential Threat Amid Conflict
×