The British pound gained ground against the dollar and the euro on Friday after a steep plunge a day earlier when Bank of England Governor Andrew Bailey had said more aggressive interest rate cuts might be on the table.

Bank of England Chief Economist Huw Pill on Friday called for a more cautious approach to lowering rates, aiding sterling's 0.3% rise on the day to $1.317.

But the pound was still headed for its steepest weekly decline in more than a year after Bailey on Thursday said the BoE could become "a bit more activist" and "a bit more aggressive" in its approach to lowering rates.

Bailey's comments caused an unwinding of long positions in the pound, ING FX strategist Francesco Pesole said. Sterling has gained about 3.4% so far this year, outperforming other G10 currencies on the back of expectations that the BoE will keep rates higher for longer than those elsewhere.

"There is further room for position squaring to weigh on sterling unless BoE communication or data force another hawkish repricing ... We still think $1.30 can be hit in sterling in the coming weeks," Pesole said.

The dollar was flat against a basket of other major currencies ahead of the crucial U.S. payrolls report due at 1230 GMT that could provide more clues on the state of the U.S. economy and shape the Federal Reserve's next steps in the rate-cut cycle.

In Britain, the latest industry survey showed that the construction sector grew at its fastest pace in nearly two and a half years in September, with some companies concerned about possible spending cuts and tax increases in finance minister Rachel Reeves' first budget on Oct. 30.

Reeves has warned that some taxes might rise as the new government seeks to boost public services and investment.

Sterling firmed 0.4% to 83.74 pence per euro after registering its biggest one-day drop in nearly two years on Thursday.

(Reporting by Medha Singh; Editing by Amanda Cooper and Andrew Heavens)