British pound plummets as Bank of England warns of recession risk The British pound on Thursday was set for its largest daily drop since the onset of the coronavirus pandemic, after the Bank of England warned of a sharp growth slowdown in the U.K. economy. In a widely expected move, policymakers at the Bank of England voted for a fourth consecutive rate hike since December. But policymakers also warned that GDP growth is expected to slow sharply and inflation could peak at 10% later this year.

Qs. Use a relevant diagram to explain how a rise in inflation rate can lead to a depreciation of the British pound. (2 marks)