The pound has dropped to a three-week low this morning, after the governor of the Bank of England said it could make larger cuts to interest rates if the jobs market slows quickly.
Andrew Bailey told the Times that “slack” was opening up in the UK economy, after the increase to employers’ national insurance contributions. That slack should create downward pressure on inflation.
Bailey insisted: “I really do believe the path is downward” for interest rates. Bank rate is currently 4.25%, following four quarter-point cuts in the last year, with the Bank next scheduled to set rates on 7 August.
Bailey added:“If we saw the slack opening up much more quickly, that would lead us to a different conclusion.”“I think the path [for interest rates] is down. I really do believe the path is downward but we continue to use the words ‘gradual and careful’ because … some people say to me, ‘Why are you cutting when inflation’s above target?’”
He also pointed to Rachel Reeves’s decision to hike taxes on employers, saying companies were:“adjusting employment and hours and also having pay rises that are possibly less than they would have been if the NICs change hadn’t happened”
New data this morning shows that the number of people hunting for jobs has surged at the fastest rate since the height of the Covid pandemic.
After Bailey’s rate cut hint, the pound has dropped by 0.2% this morning to $1.3467. That’s its lowest level since 23 June, three weeks ago, extending its recent losses.
The euro is also weakening this morning, after Donald Trump announced that goods imported from the European Union will face a 30% US tariff rate from 1 August.
Trump’s latest trade war bombshell has disappointed the EU, as the two sides had been negotiating for weeks. Europe had hoped Trump would agree to a bare bones deal similar to the UK’s pact, that would have lowered tariffs on car exports and steel.
But instead, the US president has decided to impose higher costs for US importers who buy goods from the EU. In response, the EU has decided to delay, again, its own retaliatory tariffs on US exports,
European stock markets are on track to open lower, after Donald Trump’s threatened 30% tariff on EU imports.
The Eurostoxx 50 index of large European companies is down 0.72% in futures trading, while DAX futures (the German stock market) are down 0.84%, Reuters reports.
Meanwhile, bitcoin has surged to a new record high this morning, clearing the $120,000 point for the first time.
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