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Bailey speech: I do not believe we have acted too late
Following the decision after the November meeting to increase the policy rate by 25 basis points (bps) to 4%, Bank of England (BoE) Governor Andrew Bailey discusses the policy outlook and takes questions from the press.
Bailey keeps further rate rises on the table
"Encouraging news of past 48 hours does not mean we can say there will be no need to raise rates again."
"I do not think we have moved too late."
"I will not sign up to "two and done" outlook for rates."
"Situation is so volatile that we can't put weight on two days news that hasn't been backed up by clear move to peace process."
Pound Sterling Explained
Dating back to 886 AD, the Pound Sterling (GBP) is the world’s oldest currency and serves as the United Kingdom’s official currency. According to 2022 data, it ranks fourth among the world’s most traded foreign exchange (FX) currencies, representing 12% of all transactions and averaging $630 billion in daily turnover. Among its principal trading pairs, GBP/USD, known as ‘Cable’, represents 11% of FX transactions. GBP/JPY, which traders call the ‘Dragon’, accounts for 3%, while EUR/GBP accounts for 2%. Responsibility for issuing the Pound Sterling rests with the Bank of England (BoE).
Monetary policy set by the Bank of England has the greatest influence on the Pound Sterling’s value. Decisions depend on whether the BoE has met its main objective of “price stability” – inflation holding steady at around 2%. Adjusting interest rates is its principal means of pursuing that objective. To curb excessive inflation, the BoE raises interest rates, increasing borrowing costs for households and businesses. GBP generally benefits because higher rates make the UK a more appealing destination for international investors’ funds. By contrast, inflation that falls too low signals a slowdown in economic growth. Under those circumstances, the BoE will consider cutting interest rates to make borrowing cheaper, encouraging businesses to take out more credit for investment in projects that support growth.
The Pound Sterling can respond to economic releases because they provide a measure of the economy’s health. GDP, manufacturing and services PMIs, and employment figures are among the indicators that can steer GBP. Sterling benefits from economic strength, which draws in more overseas investment and may also prompt the BoE to raise interest rates, directly strengthening GBP. Weak economic figures, on the other hand, are likely to weigh on the Pound Sterling.
The Trade Balance is another important release for the Pound Sterling, showing the difference between a country’s export earnings and its spending on imports during a specified period. Strong overseas demand for a country’s exports supports its currency through the additional demand from foreign buyers purchasing those goods. A positive net Trade Balance therefore strengthens the currency, while a negative balance has the opposite effect.
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