Pound hits 14-month low on inflation and fiscal worries

The British pound dropped to $1.22566, its lowest level since November 2023, as concerns over the UK’s fiscal health and inflation outlook weighed on investor confidence.

Pound hits 14-month low on inflation and fiscal worries

This decline occurred despite a surge in UK bond yields, with the 30-year yield reaching its highest level since 1998 and the 10-year yield hitting levels not seen since 2008. While higher yields typically support a currency, the pound’s fall reflects fears of capital flight amid persistent inflation and fiscal instability. Rising borrowing costs have added pressure on Chancellor Rachel Reeves, whose fiscal flexibility is increasingly constrained. In October, Reeves presented a budget featuring £142 billion in borrowing and an annual spending increase of £74 billion, intensifying worries about fiscal sustainability.

Inflation concerns rise as BOE rate cut expectations fall

Inflation remains a significant concern as CPI, wage growth, and inflation expectations continue to climb. Traders now forecast just two Bank of England rate cuts this year, down from over three anticipated a month ago.