Governor Andrew Bailey’s latest comments have triggered a sharp sell-off in the British pound, pushing the currency to its weakest position since late June. Bailey’s warning about potential accelerated monetary easing if job market conditions worsen has left investors scrambling to reassess their positions on sterling and UK interest rates.
The central bank chief highlighted concerning signs of economic slack emerging across the UK economy, with employer tax increases contributing to the downturn. While Bailey emphasized the need for a measured approach to rate cuts, his confidence in continued monetary loosening has clearly resonated with market participants who are now betting heavily on further policy easing.
Economic data continues to paint a troubling picture of the UK’s performance, with gross domestic product contracting unexpectedly in both April and May. The labor market, traditionally a key indicator of economic health, is showing signs of significant stress, with hiring activity dropping at its fastest pace in almost two years according to professional services firm analysis.
Market pricing now suggests an 85% likelihood of a rate reduction in August, representing a notable increase from the 76% probability assigned just a week earlier. This shift reflects growing consensus among traders and investors that the Bank of England will need to act more decisively to support the struggling economy, even as inflation remains above target levels.