FX.co ★ Sterling Falls as UK Borrowing Exceeds Forecast

The British pound declined to approximately $1.34, marking its lowest point in a week, following reports indicating that the UK government borrowed £7.2 billion more than anticipated during the first half of the fiscal year. This highlights the significant fiscal challenges confronting Chancellor Rachel Reeves as she prepares for the upcoming budget on November 26. The budget deficit reached £99.8 billion, exceeding the Office for Budget Responsibility's (OBR) forecast of £92.6 billion, as debt-interest expenses spiked by 66% to £9.7 billion in September, the highest ever recorded for that month. The fiscal deterioration is attributed to high inflation, escalating welfare costs, and weak tax revenues, prompting concerns that Reeves may need to implement up to £35 billion in spending reductions or tax increases to adhere to fiscal regulations. Economists have cautioned that borrowing could rise to 5% of GDP this year, complicating fiscal strategies and impacting investor confidence. Concurrently, the pound also weakened following a statement by Bank of England Governor Andrew Bailey, who noted the economy is operating "below potential" with unemployment rising to 4.8%, which bolsters expectations of a potential rate cut by early 2025.