Sterling retreats after BoE decision maker says Brexit uncertainty could mean lower rates

The pound slipped below the $ 1.23 against the dollar mark after a Bank of England policy maker said the next decision for the central bank could be a rate cut.

Addressing local businesses from the north of England, Bank of England decision maker Michael Saunders said the UK could consider lowering interest rates if the uncertainty around Brexit persisted.

"If the UK avoids a Brexit without agreement, monetary policy could also go both ways and I think it's quite plausible that the next move in the discount rate is going down rather than on the rise, "Saunders said Friday, according to Reuters.

The British currency slid more than 0.4% against the dollar as a result of these comments to trade at $ 1.228. The pound is down more than 3% since the beginning of the year and more than 1% since the UK voted in favor of the European Union 's exit in June 2016.

Last week, the Bank of England kept interest rates at a stable level but warned that a further delay in Britain's departure date could result in a further weakness of l & # 39; economy.

"It is possible that political events will lead to a new period of persistent uncertainty about the nature of the UK's future trade relations with the European Union and their transition," the bank said in a statement. Press release.

Saunders, meanwhile, said that even if a Brexit without agreement was avoided, the levels of uncertainty surrounding the Brexit would continue to act as a kind of "puncture" for the British economy.

"In this case, it may be appropriate to maintain a very accommodative monetary policy over an extended period and perhaps relax the policy at some point, especially if global growth remains disappointing," he said.

The CME group's BOE watch tool estimates at 8% the probability of a rate cut at the central bank meeting in early November, with most investors not expecting any change in the rates. borrowing costs less than a week after the planned UK departure date.

Prime Minister Boris Johnson has promised to deliver Brexit by October 31 "even if that means", even if it means leaving without agreement.

A Brexit "without agreement" is perceived by many parliamentarians, that it is a scenario "at the edge of a cliff", to avoid at all costs.

Abandoning without an agreement would mean a brutal departure from the EU without a transition period allowing companies to adapt to life outside the bloc.

Central banks around the world have eased their monetary policies as a result of low inflation, slow growth and an impending recession.

Earlier this month, the US Federal Reserve announced that it would lower interest rates to a target range of 1.75% to 2%, but did not indicate that further declines would follow in the course of the year. next few months.

The European Central Bank lowered its main deposit rate by 10 basis points, to -0.5%, an unprecedented low but in line with market expectations.

– Sam Meredith of CNBC and Reuters contributed to this report.