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British Pound Set For Rally As BoE Confirms Additional Rate Hike

The British pound (GBP) is primed for a mild rally against a weaker US dollar (USD) on Tuesday as traders turn their focus to the UK’s interest rates after the Bank of England (BoE) confirmed an additional hike.

Deputy Governor of the BoE Dave Ramsden told the press that the bank plans to raise its interest rates further from its current near-floor levels to tackle the ballooning inflation pressuring the UK’s economy.

The apex bank raised its lending rates by an aggressive 50 basis points (bps) last week and warned of a possible recession. The bank raised its rates from 1.25% to 1.75%, its sixth interest rate increase since late 2021. It warned that the potential recession coming at the end of the year could persist until 2024.

The British Pound Remained Flat On Tuesday

At press time, the pound trades at a neutral point against the dollar at 1.2082, while it trades lower against the euro at 84.55 pence.

Meanwhile, the political fireworks in the UK to find a replacement for Boris Johnson also exerted additional pressure on the single currency. Senior economist at Mizuho Colin Asher explained:

“One of the big uncertainties hanging over GBP is what the new government’s new fiscal plans will be. Clearly, there is likely to be significant fiscal loosening, but exactly what form that takes is up for debate.”

Asher added that: “If bills really are going to go up by as much as people are currently suggesting, there will be significant income support at the lower end of the scale.”

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