Sterling fell as well-known hawk Michael Saunders said the Bank of England could cut rates should Brexit uncertainty continue.
U.K. Prime Minister Boris Johnson is under increased pressure to secure a deal with the EU to avoid another extension, after a Supreme Court ruling declared Johnson's decision to suspend Parliament as unlawful. The ruling gives lawmakers more time to challenge Johnson's Brexit plans.
Parliament recently passed legislation mandating Johnson to ask Brussels for an extension if he fails to reach a deal by Oct. 19.
"If the U.K. avoids a no-deal Brexit, monetary policy also could go either way and I think it is quite plausible that the next move in Bank Rate would be down rather than up," Saunders, who is a member of the monetary policy committee, said at an event hosted by the Barnsley & Rotherham Chamber of Commerce & Institute of Chartered Accountants.
The comments mark a shift in Saunders' stance after he said in June that the central bank could increase rates sooner than markets thought.
Saunders said Brexit uncertainty is likely to remain high even if the U.K. is able to avoid leaving the EU without a deal. High uncertainty levels will continue to weigh on the outlook of the U.K. economy which already saw an unexpected contraction in the second quarter.
This, coupled with global growth concerns, means that rates may need to be lowered at some point, said Saunders.
Martin Beck, lead U.K. economist at Oxford Economics, expects the BoE to hike its bank rate in late 2020, given that other policymakers are against the prospect of monetary loosening. However, Beck noted that downside risks to the forecast are rising.
Meanwhile, Saunders backed the BoE's guidance of gradual rate hikes over time should Brexit uncertainty fall and global growth pick up.
The pound dropped by 0.4% to $1.2274 around 5:30 a.m. ET.
