Sterling falls as UK scraps tax hikes

The British pound weakened to around $1.31, near a seven-month low following reports that the government abandoned plans to raise income-tax rates ahead of the November 26 budget.

Prime Minister Keir Starmer and Chancellor Rachel Reeves scrapped earlier proposals to hike basic and higher tax bands, opting instead for less-direct revenue measures amid a £30 billion fiscal gap, FT reported.

The major U-turn raised concerns over fiscal discipline and political stability, prompting investors to pull back from sterling-linked assets and adding pressure on UK debt.

The currency was further weighed down by weaker-than-expected economic data, as the economy grew only modestly in Q3, while September GDP contracted month-on-month.

The disappointing figures have fueled expectations of a Bank of England rate cut next month, following earlier data showing the jobless rate at a four-year high and pay growth slowing to its weakest since early 2022.