BoE Governor sparks pound plunge with rate cut comments
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The Bank of England (credit: George Iordanov-Nalbantov)
The pound sterling experienced its sharpest decline against the dollar since March, falling over 1% after Bank of England (BoE) Governor Andrew Bailey suggested the possibility of accelerated interest rate cuts.
Speaking to The Guardian Governor Bailey indicated that the BoE could adopt a “more aggressive” approach to lowering borrowing costs if inflation continues to ease.
AJ Bell investment director Russ Mould said: “Sterling was on the back foot after comments from Bank of England governor Andrew Bailey that rate cuts could become ‘more aggressive’.”
This statement comes despite persistent price pressures in the services sector, which had led investors to anticipate a more gradual reduction in rates compared to the Federal Reserve and the European Central Bank.
The comments prompted a reassessment of market expectations, with investors now pricing in a 75% chance of two quarter-point rate cuts this year. The pound fell to $1.3125 in early trading, extending its decline from last week’s high of over $1.34.
While UK inflation remained steady at 2.2% in August, services inflation, a key indicator for the BoE, rose to 5.6%. However, Governor Bailey expressed encouragement that cost of living pressures haven’t been as persistent as initially feared.
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