The British pound experienced a decline, reaching its lowest level since late July, primarily driven by increased speculation regarding potential interest rate cuts by the Bank of England. This movement was further influenced by anticipated downgrades to the UK’s productivity growth forecast and softening inflation data, adding pressure on the government’s fiscal planning.
- The British pound fell to approximately $1.325, the lowest since late July.
- Traders slightly increased bets on Bank of England rate cuts.
- The Office for Budget Responsibility is expected to downgrade the UK’s productivity growth forecast by about 0.3 percentage points.
- This downgrade could leave a £20 billion gap in public finances.
- The downgrade puts pressure on Chancellor Rachel Reeves ahead of next month’s budget.
- Softer inflation data, including the BRC report showing declines in food price inflation, reinforced expectations of monetary easing.
- Money markets now assign roughly a 68% probability of a 25 basis-point rate cut by the Bank of England in December.
The weakening of the British pound reflects growing concerns about the UK’s economic outlook and the potential for monetary policy easing. Factors contributing to this include lowered productivity forecasts, fiscal challenges for the government, and indications of softening inflation. The increased probability of interest rate cuts suggests that investors are anticipating a more accommodative monetary policy stance to address these economic headwinds.