Pound slips as BoE’s Bailey teases ‘more aggressive’ rate cuts

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

The Bank of England began easing monetary policy in August, cutting base rate from a 16-year-high of 5.25 per cent to 5 per cent, but opted to hold off on reducing it further last month amid concerns about sticky wage growth and services inflation.

Sterling sank in response to Bailey’s comments on Thursday, falling 1.1 per cent to below $1.19 by late morning, having been held near a two-year high as the US Federal Reserve piled in with 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 space for the BoE to be ‘a bit more activist’ on rate cuts if consumer price inflation, which stood at 2.2 per cent as of last month, continues to trend towards its 2 per cent target.

The BoEs’ Monetary Policy Committee will meet again on 7 November, with market pricing another 50 basis points of cuts by the end of the year – taking base rate to 4.5 per cent.

MPC members will be armed with fresh data, including crucial CPI figures due on 16 October.

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

Oil prices have fallen significantly from highs reached after Russia’s invasion of Ukraine, but have moved significantly higher in the last few days on concerns the Middle East conflict could impact supply from the region.

Bailey said the bank was watching developments ‘extremely closely’, warning there are limits to its capacity to act if oil prices – and therefore wholesale energy prices – ‘got really bad’.

However, he added: ‘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.’