The Governor of the Bank of England, Andrew Bailey, hinted at the possibility of a more assertive approach to cutting interest rates in a recent interview with The Guardian, published online on Thursday. This announcement led to a significant drop in the value of the pound, reaching its lowest point in nearly three weeks.
In August, the Bank of England made the decision to lower its benchmark interest rate by a quarter-point, marking the first reduction since March 2020. This decision, passed with a narrow 5-4 vote, brought the rate down to 5.00—its lowest in 16 years.
Inflation in the UK has decreased from its previous peaks and currently stands at 2.2 percent, marginally above the target of 2 percent. Governor Bailey suggested that these positive developments in inflation could prompt the bank to adopt a more proactive stance on rate cuts.
He pointed out that the cost of living crisis has not been as enduring as initially anticipated by the bank.
Following the publication of the interview, the pound experienced a sharp decline against both the dollar and the euro, as markets had been anticipating a more gradual reduction in interest rates by the BoE.
Bailey further mentioned that the UK central bank is keeping a close eye on Middle Eastern developments, acknowledging the gravity of the situation. He observed that an escalation of the crisis could potentially disrupt oil prices.
"In terms of monetary policy, it’s a relief that we haven't had to face a significant surge in oil prices," Bailey remarked.
Drawing on historical insights, particularly from the 1970s, Bailey noted that central banks are vigilantly observing current events to assess their impact, stressing their strong commitment to maintaining market stability.
He further stated, "There’s an understanding that there’s a threshold beyond which control could falter if conditions deteriorate drastically. Constant vigilance is essential because the situation could deteriorate," Bailey cautioned.
On economic growth, the BoE Chief expressed optimism, saying, "I believe the economy has weathered the shocks of the past five years better than many of us feared, providing a foundation for future development."
