Pound weakens as UK economy stalls and inflation falls

The British pound weakened to $1.22, hovering near levels last seen in late 2023, as traders weighed key economic data amid growing concerns over a potential stagflation scenario.

Pound weakens as UK economy stalls and inflation falls

GDP figures revealed that the economy expanded by a modest 0.1% in November, falling short of the 0.2% forecast, with growth for the three months to November stalling. According to the ONS, this suggests the economy could stagnate for a second consecutive quarter unless GDP grows by at least 0.07% in December. Meanwhile, the annual inflation rate unexpectedly dropped to 2.5% in December, which was in line with the Bank of England's forecast but below the market expectation of 2.6%.

Traders expect only one BoE rate cut amid debt concerns

Traders have priced in just one quarter-point interest rate cut by the Bank of England this year. UK financial markets, especially the bond market, remain under pressure amid rising concerns about the country’s debt levels and the government's ability to manage public finances while sticking to its budget plans.