The pound’s value has fallen following comments from Bank of England Governor Andrew Bailey, who indicated that interest rate cuts could become “a bit more aggressive.”
In a Guardian interview, he indicated that if inflation trends remain positive, the Bank might adopt a “more activist” approach to lowering borrowing costs.
Sterling dropped by nearly one percent against the dollar and euro – to $1.317 and €1.193 respectively, while inflation stands at 2.2 percent, slightly above the Bank’s two percent target.
This decline follows a recent surge in the pound’s value, which reached as high as $1.343 after Mr Bailey had previously stated that rate cuts would occur “gradually.”
Mr Bailey told the Guardian that the Bank was watching developments in the Middle East “extremely closely”, particularly movement in oil prices which could fuel inflation.
Oil prices increased by three percent due to concerns that an escalating conflict could disrupt crude supplies from the Middle East.
However, Mr Bailey noted that oil prices haven’t surged as they did after the Hamas attack on Israel a year ago.
He told the Guardian: “Geopolitical concerns are very serious. It’s tragic what’s going on. There are obviously stresses and the real issue then is how they might interact with some still quite stretched markets in places.”
From the point of view of monetary policy, Mr Bailey said “It’s a big help we haven’t had to deal with a big increase in the oil price. But obviously, we’ve had that experience in the past, and in the 1970s, the oil price was a big part of the story.
“Obviously, we keep watching it. We watch it extremely closely to see the impact of the latest news. But … my sense from all the conversations I have with counterparts in the region, is that there is, for the moment, a strong commitment to keep the market stable.
“There’s also recognition there’s a point beyond which that control could break down if things got really bad. You have to continuously watch this thing because it could go wrong.”
The Bank cut rates to five percent from 5.25 percent in August, marking the first reduction since March 2020, after inflation returned to the two percent target.
Traders are anticipating a quarter-point interest rate cut to 4.75 percent in November.
