The Bank of England raised interest rates to 3% on Thursday from 2.25%, its biggest rate rise since 1989, but it pushed back against expectations for further steep hikes, saying Britain faces a long and painful recession.
The pound slid briefly below $1.12 after the decision as the central bank said it "might" raise interest rates again because of a "very challenging" economic outlook.
The Bank of England forecasts inflation will hit a 40-year high of around 11% during the current quarter but it also thinks the British economy has already entered a recession that could last two years — longer than during the 2008-09 financial crisis.