LONDON, June 23 Reuters The pound fell on Friday, heading for its largest weekly loss in over a month on rising expectations the UK economy could slip into recession after the Bank of England delivered an outsized rate hike in response to persistent inflation.

The BoE on Thursday raised interest rates to their highest level since 2008, with a halfpoint hike that markets had anticipated, but that caught a number of investors off guard.

Money markets show UK rates could peak as high as 6 by the end of this year and stay there for another six months, given how entrenched inflation is becoming in the broader economy.

Meanwhile, a key marketbased gauge of confidence in the economy fell to its weakest since early 2000, reflecting how investors are upping their bets on the UK succumbing to recession.

Sterling fell by as much as 0.5 on the day against the dollar to a low of 1.2685. It later recovered to trade down 0.4 at 1.2702, but was set for a weekly loss of nearly 1, its largest since midMay.

What has been interesting has been the pound39;s reaction. Normally, a G10 major central bank going for a jumbo rate hike, you39;d expect a jump in sterling. But that fact that it39;s come off is just a reflection of those fears, City Index markets strategist Fiona Cincotta said.

Fears of a recession are going to ramp up from now on and that is going to limit sterling39;s potential, especially when you39;ve got Fed Chair Jerome Powell sounding hawkish as well, so there isn39;t…