Sterling Hits Three-Week Low as BoE Signals Readiness for Accelerated Easing

The British pound suffered its steepest decline in weeks following Governor Andrew Bailey’s indication that the Bank of England is prepared to quicken the pace of interest rate cuts should the UK’s job market face a more severe downturn than currently anticipated. Currency traders responded immediately, driving the pound down 0.2% to $1.3467 before a modest recovery brought it to $1.3474 by day’s end.
Bailey’s comments highlighted the emergence of economic slack within the UK economy, pointing to increased employer taxation as a contributing factor to the slowdown. Despite advocating for a cautious approach to monetary policy, the Governor expressed clear conviction that interest rates would continue declining from their current 4.25% level, building on four previous quarter-point reductions implemented over the past twelve months.
The economic backdrop supporting these dovish signals includes disappointing GDP performance, with official data showing unexpected contractions in both April and May. These figures paint a concerning picture of the UK’s economic trajectory and provide context for the Bank of England’s increasingly accommodative monetary policy stance.
Employment market conditions have become a focal point of concern, with independent analysis revealing the sharpest drop in business hiring activity in almost two years. This trend supports Bailey’s warnings about potential labor market deterioration and helps explain the shift in market expectations, with traders now assigning an 85% probability to an August rate cut, up from 76% at the end of the previous week.