Bailey speech: I do not believe we were too late to act

4% is the Bank of England (BoE)’s new policy rate. Following the decision to increase it by 25 basis points (bps) after the November meeting, Governor Andrew Bailey outlines the policy outlook and takes questions from the press.

Policy highlights

"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: Key Questions

Pound Sterling at a glance

Dating back to 886 AD, the Pound Sterling (GBP) is the world’s oldest currency and serves as the United Kingdom’s official currency. Globally, it ranks fourth by foreign exchange (FX) trading activity. According to 2022 data, it represents 12% of all transactions, with daily turnover averaging $630 billion. Among its main trading pairs, GBP/USD, known as ‘Cable’, accounts for 11% of FX trading. GBP/JPY, called the ‘Dragon’ by traders, represents 3%, while EUR/GBP accounts for 2%. The Bank of England (BoE) issues the Pound Sterling.

BoE policy drives Pound Sterling

Monetary policy set by the Bank of England has the greatest influence on the Pound Sterling’s value. Policy decisions centre on whether the BoE has met its main objective of “price stability”: inflation holding steady at around 2%. Interest rate adjustments are its principal means of achieving 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 more attractive to international investors seeking a home for their funds. By contrast, inflation that falls too low signals slower economic growth. The BoE will then consider cutting rates to reduce borrowing costs, encouraging businesses to take out loans and invest in projects that support growth.

Economic indicators shape the Pound’s direction

The Pound Sterling can respond to economic releases that indicate the health of the economy. GDP, Manufacturing and Services PMIs, and employment figures are among the indicators that can steer GBP. Economic strength supports Sterling by drawing in more overseas investment. It may also prompt the BoE to raise interest rates, directly strengthening GBP. Weak economic readings, by contrast, are likely to weigh on the Pound Sterling.

Trade Balance affects the Pound’s value

The Trade Balance is another important release for the Pound Sterling. Over a specified period, it records the difference between a country’s export earnings and its spending on imports. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers purchase those goods. A positive net Trade Balance therefore supports the currency, while a negative balance has the opposite effect.