The pound fell by more than a cent against the US dollar to hit its lowest level since mid-2020, below $1.24, as the gloominess of the BoE’s new forecasts for the world’s fifth-largest economy caught investors by surprise.
They also trimmed bets on the central bank hiking rates aggressively this year. Short-dated British government bond yields slid sharply.
The BoE’s nine rate-setters voted 6-3 for the rise in Bank Rate from 0.75 per cent, with Catherine Mann, Jonathan Haskel and Michael Saunders calling for a bigger increase to 1.25 per cent.
Officials also said they would consider beginning the process of actively selling bonds purchased under quantitative easing, a milestone for the policy which began over a decade ago. No major central bank has yet conducted active sales of government bonds.
Central banks are scrambling to cope with a surge in inflation that they described as transitory when it began with the post-pandemic reopening of the global economy, before Russia’s invasion of Ukraine sent energy prices spiralling.
The BoE said it was also worried about the impact of renewed Covid-19 lockdowns in China which threaten to hit supply chains again and add to inflation pressures.
“It is a very weak projection, a very sharp slowdown,” BoE Governor Andrew Bailey told reporters. “There’s a technical definition of a recession it doesn’t meet — but put that to one side — it is a very sharp slowdown in activity.”
 "Bank of England, BoE")