The value of the pound has sunk sharply as the Bank of England signalled there would be more interest rate cuts later this year. Sterling plunged 1.1pc during trading to $1.237 after policymakers cut interest rates to 4.5pc in a surprise vote that saw two members vote for even steeper reductions. It later recovered to about 0.6pc down at the close of trading, at $1.244. The Monetary Policy Committee (MPC) voted 7-2 to cut rates as it slashed its growth forecast for 25 in half. Officials warned that there were increasing signs that Rachel Reeves’s record tax raid was dragging on the economy, which is predicted to barely avoid falling into recession. Two MPC members, Catherine Mann and Swati Dhingra, called for a bigger rate cut of half a percentage point to 4.25pc, as they warned there were signs that the economy was slowing faster than expected. Traders have ramped up bets on further interest rate cuts, favouring another three reductions by the end of the year. However, the Governor of the Bank of England, Andrew Bailey, insisted there would be a “gradual and careful approach to reducing rates further”. Bank staff now believe the economy will expand by just 0.75pc this year, down from a projection of 1.5pc just three months ago. Its latest economic forecasts warned of a stagnating economy, higher inflation and rising unemployment against the backdrop of a £40bn tax raid that will hit low-paid workers hardest.