The pound plummeted to its lowest in three weeks after BoE Governor Andrew Bailey suggested the central bank might accelerate rate cuts if the labor market deteriorates further. The currency hit $1.3467 before a modest rebound.
Bailey described a UK economy facing growing slack, with higher employer taxes contributing to the slowdown. While the BoE has maintained a cautious tone, Bailey’s conviction about further rate cuts from 4.25% has shifted market expectations, especially after four consecutive cuts.
GDP data showing contractions in April and May have heightened concerns, and a KPMG report revealed the steepest hiring drop in almost two years, deepening labor market worries.
Markets now price in an 85% chance of a rate cut in August, up from 76% previously, as the government faces the twin challenges of persistent inflation and declining living standards.