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Bank of England Governor Andrew Bailey briefed Chancellor Rachel Reeves on potential market reactions ahead of the UK budget. In an interview, he noted discussions about financial markets before and after the budget on October 30, which introduced significant fiscal loosening, unsettling investors.
Bank of England officials indicated that the recent selloff in UK bonds, triggered by the government's budget announcement, was intensified by investor positioning. Governor Andrew Bailey stated that the market's adjustment, which saw short-end rates unwound, is likely complete now.
The Bank of England has cut borrowing costs for the second time this year, reducing the benchmark interest rate to 4.75%. While eight members of the Monetary Policy Committee supported the move, Catherine Mann dissented, advocating for a hold at 5%. The bank cautioned that the budget could increase inflation by up to half a percentage point.
The Bank of England is poised to implement its second interest rate cut of the year, reducing the benchmark rate to 4.75%, despite a recent fiscal boost from Chancellor Rachel Reeves that may elevate near-term inflation. While the Budget's impact on long-term inflation remains uncertain, economists believe the easing of inflationary pressures provides the central bank with the flexibility to lower rates.
Bank of England Governor Andrew Bailey warned that poorly managed clearing houses can pose significant risks to the financial system. Speaking at international finance meetings in Washington, he emphasized that while central counterparties can help mitigate credit risk during a bank failure, their mismanagement could threaten overall stability.
The Bank of England is seeking improved methods to monitor non-bank financial institutions amid rising sector risks. Governor Andrew Bailey highlighted the necessity for enhanced tools to assess how investment banks, insurers, hedge funds, and asset managers manage various stress scenarios.
UK services inflation has dropped below 5% for the first time since May 2022, signaling potential rate cuts from the Bank of England. The BoE had anticipated a higher figure of 5.5% for September, but the actual rate came in at 4.9%, influenced by falling air fares. This trend suggests a genuine decline in inflation persistence, with expectations for further cuts beyond November, potentially reaching 3.25% by next summer, despite a likely rise in headline inflation due to stabilizing natural gas prices.
The EUR/GBP exchange rate rebounded sharply after dovish comments from the Bank of England governor, Andrew Bailey, suggesting potential interest rate cuts if inflation continues to improve. This shift in sentiment has led to a technical bullish pattern, indicating a possible short-term recovery for EUR/GBP, with key levels to watch at 0.84 and 0.85. Traders are advised to consider buying above 0.8350, targeting 0.8450 and 0.85, with a stop at 0.83.
Andrew Bailey
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British Pound Sterling
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