The pound faced a sharp decline on Thursday following remarks by Andrew Bailey, the governor of the Bank of England, indicating the potential for “more aggressive” interest rate cuts. Bailey suggested that if inflation remains stable, the Bank may take a more proactive approach to reducing borrowing costs in an interview with The Guardian.
Economists reacted to Bailey’s comments by predicting forthcoming rate cuts, further exacerbating the downward pressure on the pound caused by weaker-than-expected performance in the UK services sector. The pound was down 1.13% against the US dollar at 1.312 and 0.82% against the euro at 1.190.
Kathleen Brooks, research director at XTB, noted that the market interpreted Bailey’s comments as a signal for increased monetary easing. While the pound had already experienced a significant decline earlier in the week, Brooks suggested that further downside might be limited in the short term, but Bailey’s statements could impede a potential recovery.
In London, despite the support from stronger Shell and BP shares due to rising oil prices, equity markets closed slightly lower. The FTSE 100 ended the day 0.1% lower at 8,282.52. Meanwhile, European markets also saw declines, with the Cac 40 down 1.32% and the Dax index falling by 0.78%.
On the global front, US markets experienced a marginal decline, particularly in the technology sector at the start of trading. The price of oil surged to its highest level in over a month, reaching 76.83 dollars per barrel, as market concerns over heightened instability in the Middle East overshadowed any potential gains from a more stable global supply outlook.
In corporate news, Tesco shares rose after the supermarket chain announced that its full-year profits are expected to surpass previous guidance, driven by strong sales performance. Construction firm Galliford Try also saw an increase in value after surpassing profit and sales expectations, expressing confidence in its future prospects.
However, SSP Group faced a decline as weaker-than-expected trading in continental Europe offset the rise in group sales. The company reported 6% growth in sales for the latest quarter, but saw only 3% growth in continental Europe, with French sales particularly affected by the Paris Olympics.
Overall, the FTSE 100 index saw Rolls-Royce, Tesco, Shell, Scottish Mortgage Investment Trust, and JD Sports as the biggest gainers, while Phoenix Group, Diploma, M&G, Hargreaves Lansdown, and Prudential were among the top fallers.