Bailey speech: I do not believe we have acted too late

With the policy rate raised by 25 basis points (bps) to 4% following the November meeting, Bank of England (BoE) Governor Andrew Bailey discusses the policy outlook and takes questions from the press.

What Are the Main Takeaways?

"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."

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

"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: Common Questions Answered

What should you know about the Pound Sterling?

As the United Kingdom’s official currency, the Pound Sterling (GBP) is also the world’s oldest currency, dating back to 886 AD. According to 2022 data, it ranks fourth globally in foreign exchange (FX) trading, representing 12% of all transactions with an average daily value of $630 billion. Among its main trading pairs, GBP/USD, known as ‘Cable’, represents 11% of FX trading. GBP/JPY, which traders call the ‘Dragon’, accounts for 3%, while EUR/GBP accounts for 2%. The Bank of England (BoE) issues the Pound Sterling.

Why do Bank of England decisions matter for the Pound Sterling?

Monetary policy set by the Bank of England is the most important influence on the Pound Sterling’s value. In making its decisions, the BoE assesses whether it has met its main objective of “price stability” – keeping inflation steady at around 2%. Adjusting interest rates is its principal means of meeting that objective. To curb excessively high inflation, the BoE seeks to raise interest rates, increasing borrowing costs for individuals and businesses. GBP generally benefits because higher rates make the UK a more appealing destination for global investors’ funds. By contrast, inflation that falls too low signals slowing economic growth. The BoE would then consider cutting interest rates to make credit cheaper, encouraging businesses to borrow more for investment in projects that generate growth.

Why does economic data matter for the Pound’s value?

The Pound Sterling can respond to economic releases because these provide a measure of the economy’s health. GDP, Manufacturing and Services PMIs, and employment figures are among the indicators that can steer GBP’s direction. Sterling benefits from a robust economy, which draws in more overseas investment and may also prompt the BoE to raise interest rates, directly strengthening GBP. Weak economic readings, on the other hand, are likely to weigh on the Pound Sterling.

Why is the Trade Balance important for the Pound?

The Trade Balance is another key economic release for the Pound Sterling. Over a specified period, it captures the difference between a country’s export earnings and its spending on imports. Strong overseas demand for a country’s exports supports its currency through the additional demand generated by foreign buyers purchasing those goods. A positive net Trade Balance therefore strengthens the currency, while a negative balance has the opposite effect.