The Bank of England (BoE) may adopt a more aggressive stance on cutting interest rates if inflation pressures continue to ease, but ongoing conflict in the Middle East could lead to higher oil prices, according to Governor Andrew Bailey.
In an interview with the Guardian newspaper, Bailey indicated that the BoE could become “a bit more activist” and “a bit more aggressive” in its efforts to lower rates if additional positive news regarding inflation emerges for the central bank.
Sterling, which had recently strengthened as investors anticipated fewer interest rate cuts in the UK compared to other countries, was down by more than a cent against the U.S. dollar at 10:25 GMT, heading for its largest daily decline in nearly six months.
The currency also appeared poised for its most significant daily drop against the euro in almost two years.
Investors are currently assigning a 97% likelihood of a quarter-point interest rate cut by the BoE at its November meeting. Just the day before, the chance of a cut next month was priced at 90%.
The BoE’s benchmark Bank Rate currently stands at 5%, following August’s first reduction in borrowing costs in four years. While the British central bank opted to keep rates steady last month, investors anticipate another quarter-point cut at the upcoming November meeting.
Rob Wood, chief UK economist at Pantheon Macroeconomics, remarked that the central bank seems to be trending towards a quicker pace of rate cuts. However, he emphasized that the Monetary Policy Committee (MPC) would need to see easing in wage growth and price pressures before implementing consecutive cuts.
“The bar to MPC rate cuts in back-to-back meetings is falling, leaving the risks to our Bank Rate forecast skewed to faster cuts,” Wood explained. “That said, we think the latest DMP fails to green-light those faster cuts, with wage growth and price rises proving stubborn.”
Recent data from the BoE’s Decision Maker Panel survey and separate services sector data, published on Thursday, suggested that inflation pressures in the economy are weakening but still remain above normal levels.