Sterling tumbled to its lowest level in three weeks after BoE Governor Andrew Bailey suggested the central bank may accelerate interest rate cuts if the UK job market worsens. Bailey’s comments unsettled investors, causing the pound to dip to $1.3467 before closing at $1.3474.
Economic slack is widening in the UK, according to Bailey, who partly blamed higher employer taxes for the slowdown. While the BoE remains cautious, the Governor made it clear that rates, now at 4.25%, are likely to fall further, continuing a year-long trend of quarter-point reductions.
Recent GDP data revealed back-to-back contractions in April and May, deepening concerns about the nation’s economic health. The latest KPMG survey showed the sharpest decline in hiring in almost two years, amplifying fears about the labor market.
Market expectations for an August rate cut have risen sharply, with an 85% probability now priced in. The government is under pressure as inflation remains stubbornly above target and living standards decline.