LONDON (Reuters) – The Bank of England (BoE) could cut interest rates more “aggressively” in the event of new reassuring inflation data, its governor Andrew Bailey said on Thursday, while warning that conflicts in the Middle East could push up oil prices.

In an interview with the British newspaper The Guardian, Andrew Bailey indicates that it is possible that the BoE will become “a little more activist” and “a little more aggressive” in reducing its interest rates if the news on the front of inflation continues to be good.

These statements caused the pound sterling to fall on Thursday, which fell by 0.9% against the dollar and by 0.8% against the euro.

The two-year yield on British sovereign bonds fell by seven basis points, to 3.95%.

The discount rate – the BoE’s benchmark interest rate – stands at 5% after the reduction in August, the first in four years. Last month, the British central bank opted for the status quo but investors expect a further quarter-point cut to be decided at the November meeting.

Speaking to the Guardian, Andrew Bailey points out that inflationary pressures have proven less persistent than expected by the BoE but points to the risk represented by geopolitical developments in the Middle East.

“The geopolitical concerns are very serious,” he says. “What is happening is tragic. There are clearly tensions and the real question is how they can interact with markets that are still quite tense in some places.”

The BoE governor believes that there is “a strong commitment to keep the (oil) market stable”. “There is a point beyond which this control could break down if things got really bad. You have to constantly monitor the situation, because it could go wrong,” he warns.

(Written by William Schomberg in London and Gursimran Kaur in Bangalore; Blandine Hénault)

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