Pound falls as Bank of England’s Bailey teases ‘more aggressive’ rate cuts

The Bank of England could take a “more aggressive” approach to interest rate cuts if economic conditions allow, Governor Andrew Bailey said.

The Bank of England began easing monetary policy in August, cutting the base rate from a 16-year high of 5.25 percent to 5 percent, but opted to delay further reduction last month amid concerns about the rigid wage growth and service inflation. .

Sterling sank in response to Bailey’s comments on Thursday, falling 1.1 percent to below $1.19 late in the morning, after being held near a two-year high as the The United States Federal Reserve applied more aggressive rate cuts.

Bailey told The Guardian that the British economy had weathered the “shocks of the last five years” better than feared, while cost of living pressures have not been as persistent as initially thought.

He said there may be room for the Bank of England to be “a little more activist” on rate cuts if consumer price inflation, which stood at 2.2 percent last month, continues its trend towards its 2 percent target.

The BoE Monetary Policy Committee will meet again on November 7 and the market will price in another 50 basis points of cuts by the end of the year, taking the base rate to 4.5 percent.

MPC members will be provided with new data, including crucial CPI figures due to be published on 16 October.

While investors reacted optimistically to Bailey’s comments, the Governor also highlighted concerns about the potential impact of the escalating conflict in the Middle East.

Oil prices have fallen significantly from highs reached after Russia’s invasion of Ukraine, but have risen significantly in recent days on concerns that the Middle East conflict could affect supplies from the region.

Bailey said the bank was watching developments “extremely closely”, warning that its ability to act has limits if oil prices – and therefore wholesale energy prices – “get really bad”.

However, he added: “My sense from all the conversations I have with my counterparts in the region is that, at the moment, there is a strong commitment to keeping the market stable.”