Pound plummets after Bank of England article
The Bank of England (BoE) could adopt a more aggressive stance on interest rate cuts if inflation continues to ease.
In an interview with The Guardian, BoE governor Andrew Bailey (pictured) indicated that recent inflation data has been encouraging, with cost-of-living pressures not proving as persistent as the central bank had initially expected.
If the news on inflation continued to be good, Bailey pointed out there was a chance of the bank becoming “a bit more activist” in cutting rates, which currently stand at 5%.
His remarks, however, sent the pound down by 0.8%, bringing it to US$1.3185 — its lowest level since September 19, just before the Federal Reserve’s recent rate cut.
Pound falls as Bank of England governor says it could become ‘more activist’ on rate cuts – business live https://t.co/0Nn12t4XJn
— The Guardian (@guardian) October 3, 2024
The Bank of England has been more conservative with rate cuts compared to central banks in the US and in Europe. So far this year, the UK central bank has implemented only one quarter-point cut in August.
With the next Bank of England meeting on interest rates set for early November, money markets currently predict an 88% chance of a reduction to 4.75%.
Bailey noted that the central bank has been closely monitoring the Middle East crisis, expressing concerns that escalating tensions between Iran and Israel could destabilise oil prices and expose the global economy to an energy shock similar to that of the 1970s.
“Geopolitical concerns are very serious,” he told The Guardian. “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.”
Bailey also noted that, despite tensions, oil prices have remained relatively stable since the Hamas attack on Israel a year ago, unlike the significant price spikes seen in previous crises.
“From the point of view of monetary policy, it’s a big help we haven’t had to deal with a big increase in the oil price,” he stressed, although he mentioned the need to “watch it extremely closely.”
“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.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
