With the UK on track to enter a recession later this year, Pound Sterling has taken a hammering against the US Dollar.

Sterling has now fallen to its lowest level against the Dollar since 1985, to $1.145.

The combination of a weak economic outlook for the UK and a stronger Dollar is placing this pressure on Sterling.

Bank of England governor Andrew Bailey warned that the Bank could do little to prevent the UK from slipping into a recession later this year, largely due to the Russian invasion of Ukraine.

Bailey said that recession in the UK would “overwhelmingly be caused by the actions of Russia and the impact on energy prices”.

The Bank forecasts that the economy will shrink in the year’s final quarter and continue shrinking until the end of next year.

However, the Bank’s warning on the economy comes ahead of the details of a new government plan to cap energy bills.

Speculation is they could be limited to £2,500 a year for a typical bill.

Soaring energy prices have contributed to high price inflation.

The rise being partly due to the lifting of Covid-19 lockdown restrictions boosting global demand and Russia disrupting gas supplies to Europe.

Speaking to the Treasury Select Committee of MPs, Andrew Bailey said that “sadly” recession remained the most likely outcome in the UK.

MPs asked him if the Bank of England could do anything to prevent a recession, and he responded, “Insofar as the war is having this huge effect, the answer to that would be no.”

While the Bank predicted a recession last month, it still raised interest rates and borrowing costs to keep surging price inflation under control.

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What is The Monetary Policy Committee?

Higher borrowing costs will likely reduce spending by businesses and consumers, making recession a more likely outcome.

However, Bailey defended the Monetary Policy Committee’s (MPC’s) rate hike, telling MPs, “The person going to put the UK in recession is Vladimir Putin, not the MPC.”

However, he also confirmed the MPC would consider the Prime Minister’s new energy plan announcement when considering interest rates at their meeting next week.