The pound dropped to a three-week low after BoE Governor Andrew Bailey signaled a readiness to accelerate interest rate cuts if employment weakens further. Sterling fell to $1.3467 before a slight recovery.
Bailey pointed to increased economic slack and higher employer taxes as reasons for the slowdown. His comments reinforced expectations for more rate reductions from the current 4.25%, following four quarter-point cuts.
With GDP shrinking in April and May and KPMG reporting the sharpest hiring decline in nearly two years, market concerns have intensified.
Money markets now see an 85% probability of an August cut, up from 76% a week ago, as the government faces persistent inflation and falling living standards.