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Sterling tumbled to its lowest in three weeks after BoE Governor Andrew Bailey signaled the potential for faster rate cuts if the labor market deteriorates. The currency fell to $1.3467 before a modest rebound.
Bailey cited growing economic slack and employer tax increases as key factors in the slowdown. His conviction about further rate reductions from 4.25% has strengthened investor expectations, following four consecutive cuts.
GDP contractions in April and May and the steepest hiring drop in two years, as reported by KPMG, have raised alarms about the economy.
Markets now price in an 85% chance of an August rate cut, as the government faces the dual challenge of high inflation and declining living standards.