The Bank of England (BoE) could become "more aggressive" in its approach to interest rates, its governor Andrew Bailey said, suggesting that rates could fall more quickly if inflation trends continued.

The value of the pound (GBPUSD=X) slid on Thursday morning after Bailey made the comments about the central bank's approach and said it could become "a bit more activist" in a interview with the Guardian.

Sterling had fallen 1.2% to $1.31 against the dollar by midday on Thursday, which was its lowest point in three weeks.

Inflation remained steady in August, with consumer prices growing at a rate of 2.2%, which was the same as in July. However, this still remains above the Bank of England's target of 2%.

The Bank of England cut interest rates for the first time since March 2020 in August, lowering its main rate by 25 basis points from a 16-year high to 5%. However, the central bank decided to keep rates on hold in its September meeting, following the release of the August inflation data.

At the time, Bailey noted that inflationary pressures had continued to ease since its August rate cut and economy had been "evolving broadly" as expected. "If that continues, we should be able to reduce rates gradually over time," he said.

These latest comments, therefore, signal a shift for investors who had been betting on the next rate cut to come in November's meeting.

The FTSE 100 (^FTSE) was muted in early trading but moved 0.4% higher by early afternoon, as investors digested the comments.

Russell Gous, editor-in-chief of money transfer comparison site TopMoneyCompare, said: "The comments from BoE governor Andrew Bailey this morning seem to all but confirm a base rate cut in November.

Read more: Pound, gold and oil prices in focus: commodity and currency check

"Although this is positive news for millions of borrowers across the UK, it could signal turbulence for GBP in the coming weeks."

Gous said that this "ramping up in dovish rhetoric appears to have already spooked markets, and further volatility could well be on the horizon."

"Anybody looking to buy property abroad or transfer significant sums of money overseas will need to keep a close eye on GBP movements in the coming days," he added.

Meanwhile, on the other side of the Atlantic this week, US Federal Reserve chairman Jerome Powell said that the central bank was in no rush to cut interest rates.

"This is not a committee that wants to cut rates quickly," Powell said during a question and answer session following a speech in Nashville.

"We will do what it takes in terms of the speed with which we move."

The US central bank announced a bigger-than-expected 50 basis point cut in its September meeting, though Powell's latest comments tempered market bets of another 0.5% cut.

Geopolitical concerns 'very serious'

Bailey also said the central bank was monitoring developments in the Middle East "extremely closely", amid concerns of an escalating conflict between Iran and Israel.

Oil prices have continued to rise following Iran's missile attack on Israel. This came after Israel began an invasion of south Lebanon this week. Brent crude futures (BZ=F) were up 2% on Thursday afternoon to $75.46 per barrel.

Bailey said: “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.”

In terms of monetary policy, Bailey said the central bank hadn't had to deal with a "big increase" in the oil price but also noted that this had been an issue in the past with the 1970s energy crisis.

Read more: How to protect your investments in unstable markets

Oil prices soared in the 1970s, driven by an oil embargo imposed by members of the Organization of Arab Petroleum Exporting Countries (OEPEC) and conflict in the Middle East, which also contributed to higher inflation.

Bailey said that his sense from conversations with counterparts in the region is "that there is, for the moment, a strong commitment to keep the market stable".

However, he added: “There’s also recognition there’s a point beyond which that control could break down if things got really bad. You have to continuously watch this thing, because it could go wrong.”

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