The British pound dropped to a three-week low as Bank of England Governor Andrew Bailey hinted at the possibility of accelerating interest rate cuts if the employment situation worsens. The pound fell to $1.3467 before making a slight comeback.
Bailey’s comments highlighted growing economic slack and pointed to employer tax increases as a drag on growth. Despite a previously cautious stance, the Governor’s strong signal about further rate reductions from 4.25% has intensified investor expectations, following four consecutive quarter-point cuts.
The UK’s economic outlook has darkened, with GDP shrinking in both April and May. A recent KPMG report showed the sharpest hiring decline in nearly two years, raising alarms about labor market health.
Money markets now see an 85% likelihood of an August rate cut, up from 76% a week earlier, as the government struggles with high inflation and falling living standards.