Sterling is now down half a cent at $1.2090.
Matthew Ryan, Head of Market Strategy at global financial services firm Ebury, said: “Sterling has fallen fairly sharply against its major peers so far this afternoon following a very doom and gloom assessment of the UK economy from the Bank of England.
“The vote on interest rates was actually rather hawkish, with eight of the nine MPC members in support of an immediate 50 basis point rate increase. Silvana Tenreyro was the lone dissenter in favour of a standard 25 basis point hike.
“The BoE’s communications and accompanying macroeconomic projections were, however, very downbeat.
“We’ve run out of fingers and toes keeping track of the number of occasions that the MPC has revised upwards its inflation forecasts in the past year. UK headline inflation is now expected to peak at 13.3 percent in October, and remain just shy of double-digits in twelve months time.
Of particular concern is the bank’s appraisal on the impact of the cost of living crisis on economic activity.
“Policymakers now expect the UK economy to contract throughout all of 2023, with a peak-to-trough fall of more than two percent.
“This is a far sharper downturn than market participants had accounted for, hence the initial knee-jerk sell-off in the pound.”