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Sterling fell back towards an all-time low against the dollar on Monday, after a statement from the Bank of England (BoE) disappointed market expectations for an emergency rate hike to shore up the battered British currency.

In a tumultuous day, sterling dived to a record low in Asian trade, then recovered some ground on expectations the BoE would step in to calm a market on edge since the government announced its fiscal plans on Friday.

But the pound came under renewed selling pressure in late London trade after the BoE said it was closely watching markets following sharp moves in asset prices, but stopped short of delivering an emergency rate hike.

The BoE said it “will not hesitate” to raise interest rates if needed to meet its 2 per cent inflation target.

“At the moment sterling has fallen back following the (BoE) announcement … It’s a statement that suggests (Governor) Andrew Bailey is keeping his fingers crossed that sterling can stabilize before the next Monetary Policy Committee meeting but that seems a long way off,” said Chris Scicluna, head of economic Research at Daiwa Capital Markets.

At 1640 GMT, sterling was down 1.4 per cent at $1.0705. It had plunged as much as 4.85 per cent to $1.0327 in thin Asian trading, extending a 3.61 per cent dive from Friday, when finance minister Kwasi Kwarteng unveiled historic tax cuts and the biggest increase in borrowing since 1972 to pay for them.

Sterling has weakened more than 20 per cent against the dollar this year and it is set for its biggest monthly decline since November 2008.

It was 0.65 per cent lower against the euro at 89.93 pence per euro, having touched 92.60 pence, its lowest against the single currency in two years.

“We’ve had remarkable moves for a Monday afternoon,” said Chris Huddleston, CEO at FXD Capital. “We’re in for a seriously tough time and the currency is a worry”.

Money markets are fully pricing in the BoE raising rates by a percentage point to 3.25 per cent at its next meeting, according to Refinitiv data. But that is not until Nov. 3.

Paul Dales, chief U.K. economist at Capital Economics, said the government and the BoE did “the bare minimum”.

“Markets may well need more reassurance and some actual action – i.e. details on the fiscal rules, a change in policy from the government and/or an interest rate hike from the Bank at an emergency meeting before Nov. 3,” he said.

Sterling three-month implied volatility surged to 20 per cent on Monday, its highest since just after the Brexit referendum in 2016, signalling markets expect more turbulence.

British bond prices were set for their biggest slump of any calendar month since at least 1957, according to a Reuters analysis of Refinitiv and BoE data.

Economists and investors said Prime Minister Liz Truss’s government, in power for less than three weeks, was losing financial credibility in unveiling a major loosening of fiscal policy just a day after the BoE hiked interest rates to contain surging inflation.

A spokesperson for Truss said the government does not comment on market moves and is sticking to the plan outlined in its so-called mini budget.