Pound slumps after tepid BoE rate hike

Pound slumps after tepid BoE rate hike

LONDON: The pound tumbled after the Bank of England raised interest rates by just a quarter of a percentage point despite surging inflation, while oil prices jumped after OPEC+ only modestly hiked production.

The quarter-point hike apparently disappointed investors looking for the BoE to act more forcefully to combat surging prices as the central bank now expects annual inflation to rise above 10 percent this year and the economy to contract later this year.

It also followed the Federal Reserve’s decision Wednesday to raise US interest rates by half a percentage point as inflation soars also in the world’s biggest economy. The British pound plunged more than two percent to $1.2362 after the BoE decision, although it recovered some ground.

“Although the market had priced in a 0.25-percent (rate) rise, there had been some expectation that the Bank of England would… follow the lead of the Federal Reserve in increasing interest rates by 0.5 (percentage points),” Hargreaves Lansdown analyst Susannah Streeter told AFP.

“The forecast that the UK economy will contract is also adding to sterling’s decline.”

The BoE said UK output was expected to contract in the final quarter of the year when inflation is set to enter double digits as household energy prices