The Bank of England Governor, Andrew Bailey, has hinted at the possibility of more aggressive interest rate cuts in an interview with the Guardian, causing the pound to drop to a two-week low. Bailey mentioned that if inflation remains low, the Bank could take a more activist approach to cutting rates, currently at 5%. This news has also led to a rally in UK homebuilders’ shares as traders speculate on increased demand for housing due to lower borrowing costs.
The Bank of England was previously more cautious about rate cuts compared to other central banks like the Federal Reserve and the European Central Bank. The markets now believe a rate cut is almost certain at the Bank’s next meeting in November. Bailey also expressed concern about geopolitical tensions in the Middle East and the potential impact on oil prices, although he noted a commitment to keeping the markets stable.
The interview with Bailey has had a significant impact on the financial markets, with the pound weakening against the dollar and euro. The comments have also led to an increase in bets on future rate cuts by the Bank of England. Analysts suggest that the pound may continue to fall, especially if global geopolitical risks persist, and the dollar remains strong due to safe-haven flows. Overall, Bailey’s remarks have heightened expectations for further rate cuts in the UK, resulting in movements in currency and bond markets.
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