The British pound was little changed on the announcement of a larger-than-usual rate hike by the Bank of England (BOE) as economic projections were significantly downgraded. Economists at the National Bank of Canada expect the GBP to struggle in the near-term.

BoE warns of bleak outlook

“The BoE now expects inflation to reach 13% by year-end and remain at elevated levels for the entirety of 2023 only to fall back to 2% in 2024. The Bank’s baseline scenario is for the economy to slide into a 15-month recession, during which time GDP should contract by more than 2%. Moreover, the unemployment rate is projected to rise in the middle of 2023 and could exceed 6% by the middle of 2025.”  

“We see limited upside potential for the pound in the short-term and will require some of the storm clouds to dissipate in order to make some gains later in our forecast horizon.”