Bailey speech: Consumers are more price conscious and holding back on spending
Bank of England (BoE) Governor Andrew Bailey speaks on the policy outlook and responds to questions from the press following the decision to lower the policy rate by 25 basis points (bps) at the February meeting.
Key quotes
"Monetary policy cannot prevent short-term influences on headline inflation, nor should monetary policy respond to factors that will fade by the time policy takes effect."
"Short-term pick-up in inflation introduces some further uncertainty into near-term inflation outlook."
"Reasonably confident that pick-up in inflation will be temporary."
"Labour market is cooling."
"Context is of weakening economic activity."
"Evidence suggests firms are reluctant to pass on costs to consumer prices."
"Considerable uncertainty over extent to which weak economy is due to demand or supply."
"Consumers are more price conscious and holding back on spending."
"Unclear what form global trade policies will take."
"We must judge in future meetings whether underlying inflation pressures are easing enough to allow further cuts."
"Bank rate is not on a pre-set path."
"We must proceed carefully."
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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