The British pound weakened, hitting a one-week low around $1.34 amidst concerns over escalating government borrowing and a deteriorating economic outlook. Factors contributing to the pound’s decline include higher-than-expected government borrowing, surging debt-interest costs, and dovish signals from the Bank of England.
- The British pound fell to around $1.34, its lowest in a week.
- The UK government borrowed £7.2 billion more than forecast in the first half of the fiscal year.
- The budget deficit hit £99.8 billion, above the £92.6 billion projected.
- Debt-interest costs surged 66% to £9.7 billion in September, the highest on record for that month.
- The deterioration is driven by high inflation, rising welfare costs, and weak tax receipts.
- Concerns are raised that the Chancellor may need up to £35 billion in spending cuts or tax hikes.
- Economists warned that borrowing could reach 5% of GDP this year.
- BoE Governor Andrew Bailey said the economy is operating “below potential.”
- Unemployment rose to 4.8%, reinforcing bets on a rate cut by early 2025.
The increased government borrowing, coupled with rising debt costs, paints a concerning picture for the UK’s fiscal health. This situation raises the possibility of significant spending cuts or tax increases to meet fiscal targets, potentially dampening economic growth. The Bank of England’s assessment of the economy operating below potential, alongside rising unemployment, further diminishes investor confidence in the pound, suggesting possible monetary policy easing in the future.