LONDON — The British pound slid Tuesday after
Bank of England governor Andrew Bailey hinted it would refrain from aggressive monetary policy tightening despite elevated inflation, dealers said.
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In afternoon deals, the pound dropped 1.23 percent to $1.3531 — the lowest level since January 18 — while it also shed almost one percent against the euro.
Bailey signaled Monday that interest rates would have to increase to slow rising prices — but the economy was not currently strong enough to sustain this.
“The pound took a pounding after governor Bailey implied that the BoE will not aggressively tighten its belt, as the UK is facing stagflation risks,” ThinkMarkets analyst Fawad Razaqzada told AFP.
Stagflation is a vicious mix of low economic growth and high
inflation.
“Although inflationary pressures are increasing sharply, Bailey warned the UK economy is also facing strong headwinds because the services sector has not recovered as strongly as had been expected,” added Razaqzada.
The BoE had last week left its record-low interest rate and vast stimulus unchanged, despite warning that inflation would rise more than expected this year on the back of soaring energy costs.
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