Market conditions for the British pound are currently weak, trading around $1.316. Investor concerns about the UK’s fiscal sustainability are contributing to this weakness, coupled with rising gilt yields. Expectations for Bank of England rate cuts have been slightly reduced, but still indicate a likely move in December. The upcoming budget announcement on November 26 is creating uncertainty, with potential policy changes sparking cabinet debate and further complicating the fiscal outlook.
- The British pound weakened to around $1.316.
- Investor concern stems from reports that Chancellor Rachel Reeves is dropping plans to raise income tax.
- Improved forecasts from the Office for Budget Responsibility cut the expected fiscal shortfall.
- Reeves is expected to use threshold adjustments and changes to salary-sacrifice programs instead of headline income-tax increases.
- The budget, due on November 26, faces cabinet debate over policies including exit taxes and limited liability partnerships.
- Markets pared bets on Bank of England rate cuts, with about 75% probability for a December move.
- Rising gilt yields complicate the UK’s fiscal outlook and weigh on the pound.
The developments outlined paint a picture of a currency facing headwinds. Fiscal policy uncertainty and the complexities surrounding government revenue generation, coupled with rising borrowing costs reflected in gilt yields, are creating downward pressure. While expectations remain for a potential interest rate cut which could weaken the currency, the budget announcement will likely be a critical event determining the direction of the pound in the near term.