Time to recap.

The pound is limping home on its worst day in over 18 months, after the Bank of England reignited expectations of more rapid cuts to interest rates.

Against the dollar, sterling is currently down over 1.5 cents at $1.3108, a drop of 1.2%. That would be its biggest one-day drop since March 2023, and takes the pound down to a three-week low.

It’s a similar position against the euro, where the pound is down 0.9% at €1.1905, again the worst fall in over 18 months.

The selloff began after the governor of the Bank of England told the Guardian it could become a “bit more aggressive” in cutting interest rates if inflation continues to cool.

Andrew Bailey said he was encouraged that cost of living pressures had not been as persistent as feared, but warned the Bank was monitoring the Middle East crisis amid fears of an oil price shock.

In a wide-ranging interview, Bailey held out the prospect of Threadneedle Street becoming a “bit more aggressive” in cutting interest rates, provided the news on inflation continued to be good.

The comments sent City analysts racing to reprice their forecasts for UK interest rates.

Hubert de Barochez, senior markets economist at Capital Economics, says:

The British pound fell sharply today, and we suspect that it will weaken more over the next year or so given our dovish view of Bank of England policy, the currency’s still-high valuation, and stretched speculative positioning.

Royal Bank of Canada now predict the Bank of England will cut rates at every meeting until next May.

Elsewere, the oil price has jumped again after president Biden indicated Israel could strike Iran’s oil facilities in retaliation for the missile attack earlier this week.

Tesco lifted its profit forecasts, after sales in the first half of the year were stronger than expected:

Bank payments can be delayed by an extra three days if lenders suspect consumers are being scammed, as part of a crackdown on booming levels of digital fraud in Britain.

Lender Revolut has blasted tech giant Meta, saying it should share the costs of reimbursing fraud victims.

The number of customer complaints that were unable to be resolved by water companies in England and Wales has risen by almost a third to the highest level in nearly a decade.

The oil price has hit its highest level in a month, as energy traders watch events in the Middle East closely.

Brent crude has jumped by as much as 5% today to trade as high as $77.65 per barrel today, the highest since the end of August.

Back on Tuesday, Brent briefly fell below $70/barrel, before surging as Iran fired missiles at Israel, fuelling fears that a regional war could begin in the Middle East.

Today, the Lebanese army said that it returned fire at Israeli forces after one of its soldiers was killed in an Israeli strike.

And an Iranian source has told Al Jazeera that Iran has sent a message to the US, via Qatar, saying that “the phase of unilateral self-restraint has ended”. It also reportedly said any Israeli attack would meet an “unconventional response” that includes targeting Israeli infrastructure.

Our Middle East crisis liveblog has all the details:

Inki Cho, financial markets strategist consultant to brokerage Exness, says:

Oil futures continued their upward trajectory on Thursday as escalating tensions in the Middle East raised concerns about potential disruptions to regional crude supplies.

Risks of a larger conflict could continue to push prices to the upside. The uncertainty around the next developments could leave markets cautious.

Any damage to energy infrastructure in the region could lead to more dramatic price spikes, further contributing to the bullish outlook after weeks of declines on demand concerns.

In the banking world, fintech firm Revolut is calling on Meta to commit to sharing the cost of reimbursing of fraud victims.

Revolut argues that Meta’s new data sharing initiative with UK banks and financial institutions “falls woefully short of what’s required to tackle fraud globally”.

Meta has announced it will expand its data sharing scheme with more financial institutions, to help stop scammers who use social networks to defraud users.

Nathaniel Gleicher, Meta’s global head of counter-fraud, explained:

We will only beat these criminals if we work together and share relevant information related to scams. Financial institutions can share unique information with us which we can in turn use to train our systems to take action against more scams globally.

But Revolut’s head of financial crime, Woody Malouf, says Meta’s scheme isn’t good enough:

These plans are baby steps, when what the industry really needs is giant leaps forward. What our latest report on financial crime shows is that social media platforms not only continue to enable fraud, but that the issue is just as bad today as it was last year. Victims and financial institutions still ultimately bear the cost. These platforms share no responsibility in reimbursing victims, and so they have no incentive to do anything about it. A commitment to data sharing, albeit needed, simply isn’t good enough.

We are confident in the steps the UK government is taking to tackle fraud, but what is urgently needed now is for Meta and other social media companies to commit to supporting victims of fraud in the same way financial institutions do. Their silence on this issue says it all.

We are prepared to do our part to keep customers safe, and so should they. We should be the last line of defence, not the only line of defence.

Meta’s plans, and Revolut’s criticism, come as the government brings in new rules which mean fraud victims wiill receiving up to £85,000 in refunds from banks within five days of an authorised push payment scam.

Banks, though, argue that technology companies must do more.

Last month David Callington, the head of fraud at HSBC UK, told the Guardian that tech firms should be made to cover the cost of fraud perpetrated over their networks.

The costs of fraud will also now be shared equally by the banks and payment firms on both sides of the transaction, meaning there will be a fresh burden on the companies whose accounts receive the victims’ cash.

Royal Bank of Canada have revised their forecasts for UK interest rates, following BoE governor Andrew Bailey’s interview in the Guardian today.

RBC now believes there is scope for the Bank’s monetary policy committee to deliver “more and faster easing than previously”.

They now predict the Bank will cut interest rates by 25 basis points, or a quarter of one percentage point, “at successive MPC meetings between November this year and May next year.”

Previously, they had expected the Bank to cut in November but hold rates, at 4.75%, in December.

As well as two more cuts this year (November and December, following the cut in August), they also anticipate cuts at the Bank’s meetings in February, March and May.

RBC say that equates to the BoE delivering 150bps of cuts in total in this current cycle to leave Bank Rate at 3.75% - 50bp more than it had penciled in hitherto.

Italy’s stock market is having a bad day too, as investors react to the prospect of a new windfall tax.

According to Bloomberg, Italian Finance Minister Giancarlo Giorgetti has said Italy plans to raise taxes on the companies that benefitted most from the economic turbulence of recent years in order to help bring down the country’s budget deficit.

In an interview for Bloomberg’s Future of Finance event in Milan today, Giorgetti suggested that a number of industries could face new levies.

He says:

We will be approving a budget that will require sacrifices from everyone, which means taxing extra profits.

It means taxing profits made and revenues made, and it is an effort that the whole country must undertake which means individuals, but also small, medium and large companies.

Italy’s FTSE MIB share index is down 1.35% today, the biggest fall among major European markets today.

Back in the markets, the pound is on track for its worst day against the euro in almost two years.

The rapid repricing of the outlook for UK interest rates has pushed sterling down by over 1% against the euro.

It’s down 1.3 eurocents now, at €1.188.

This would be the biggest one-day drop, in both points and percentage terms, since 15 December 2022.

Deutsche Bank have just published a research note on the market reaction to our interview with Bank of England governor Andrew Bailey.

In it, they point out that markets have been pushing up the chances of an interest rate cut in December, as well as at November’s meeting.

A cut in November now looks very likely, but could the Bank actually manage two cuts by Christmas?

Deutsche’s strategist Shreyas Gopal writes:

One simple interpretation of the Governor’s comments is that it could now take an upside surprise to inflation for the MPC not to cut rates back-to-back in November and December.

Previously the guidance suggested that the burden of proof was on inflation to surprise to the downside for such a shift away from the “gradual” pace of easing. Consistent with that interpretation, the rates market has notably increased its pricing for the December meeting. It’s the largest dovish repricing of this particular meeting in over six months, though in level terms we have simply reverted to levels seen just a couple of weeks ago.

Here’s our news story on the pound’s tumble today:

Today is turning into the pound’s worst day in over 18 months.

Update: at 12.20pm, sterling is down around 1.2% so far today against the US dollar at around $1.31, a drop of over 1.5 cents.

That would be its biggest one-day drop against the dollar since 7 March 2023.

The pound has been dropping steadily through the day, after the governor of the Bank of England told the Guardian it could become a “bit more aggressive” in cutting interest rates if inflation continues to cool.

The pound continues to slide against the US dollar – it’s now down a cent and a half, at $1.3115, which is a three-week low.

Michael Brown, senior research strategist at brokerage Pepperstone, reckons the markets may be overdoing it…

Andew Bailey’s hint that the Bank of England could be “more aggressive” in cutting interest rates is also moving the London stock market.

Shares in housebuilders are rallying, as traders calculate that lower borrowing costs could lift demand for homes.

Housebuilder Persimmon is the top riser on the FTSE 100 share index, up 3.1%, followed by rival Vistry (+2.3%) and Barratt (+2.2%).

Sterling has been rattled by the dovish comments from the Bank of England governor Andrew Bailey in today’s interview with the Guardian, says Kathleen Brooks, research director at XTB.

Brooks points out that the dollar has also been benefitting from ‘safe haven flows’, as nervous investors try to protect their money due to the Middle East crisis.

She says it’s been a ‘bruising week’ for the pound, which may have further to fall against the dollar.

In a note headlined “Andrew Bailey sinks the pound”, Brooks explains:

The pound was already selling off before Bailey’s comments, and GBP/USD is down more than 1% so far this week, it is down from $1.34 at the start of this week to below $1.31 this morning.

It has found decent support at $1.3170, however, this has been a bruising week for the pound, and $1.35 seems like a mountain to climb from here. Part of the pound’s sell off is due to external factors. As geopolitical risks in the Middle East have risen, the US dollar has caught a bid. The currencies that were most extended vs. the US dollar have sold off rapidly, as investors have sought the safety of the dollar.

Hence, the pound and the yen were in the sellers’ sights, as the markets scrambled to buy dollars. The pound is still the best performing currency in the G10 FX space so far this year, thus, if tensions escalate further, then we could see another leg lower for GBP/USD [the pound against the dollar].

Supermarket chain Tesco has announced it now expected to make profit of £2.9bn for the year, up from £2.8bn previously predicted.

Tesco says it will make £100m more than expected after it grabbed share from rivals by cutting prices, put more staff on the shop floor and used AI to target ranges to local tastes.

The UK’s biggest supermarket said it had made £260m of cost savings in the six months to 24 August and had also benefited from restructuring its bank and shoppers trading up to higher priced products as the cost of living crisis has eased.

The retailer said 20 million more people had bought its Finest premium own-label range.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The pound has dropped to a two-week low this morning, after the Bank of England governor told the Guardian that the central bank could become a “bit more aggressive” in cutting interest rates provided the news on inflation continued to be good.

Andrew Bailey told us that he has been encouraged by the fact that cost of living pressures had not been as persistent as the Bank thought they might be.

In an interview with my colleague Larry Elliott, Bailey says that if the news on inflation continued to be good there was a chance of the Bank becoming more “a bit more activist” in its approach to cutting interest rates, now at 5%.

This has knocked the pound, which is down 0.8 of a cent to $1.3185, its lowest level since 19 September (just before the Fed’s rate cut).

The Bank had recently sounded more cautious about rate cuts than its counterparts in the US and the eurozone. It has only made one quarter-point cut this year, in August, while the Federal Reserve has cut US rates by half a point, and the European Central Bank has made two quarter-point cuts since June.

The Bank is next scheduled to set interest rates in early November; the money markets suggest there’s an 88% chance of a cut, to 4.75%.

Bailey made the comments in a wide-ranging inteview, in which he explained he was watching developments in the Middle East “extremely closely”.

Bailey told us:

“Geopolitical concerns are very serious,.

It’s tragic what’s going on. There are obviously stresses and the real issue then is how they might interact with some still quite stretched markets in places.”

Bailey said that in the year since the Hamas attack on Israel there had not been a big rise in oil prices of the sort seen in the past.

He explained:

“From the point of view of monetary policy, it’s a big help we haven’t had to deal with a big increase in the oil price. But obviously we’ve had that experience in the past, and in the 1970s, the oil price was a big part of the story.

“Obviously, we keep watching it. We watch it extremely closely to see the impact of the latest news. But … my sense from all the conversations I have with counterparts in the region, is that there is, for the moment, a strong commitment to keep the market stable.

Here’s the full interview:

The agenda

• 9am BST: Eurozone services PMI index for September

• 9,30am BST: UK services PMI index for September

• 10am BST: Eurozone producer prices index for August

• 12.30pm BST: Challenger survey of US job cuts for September

• 1.30pm BST: US weekly jobless claims report