FX.co ★ Sterling Falls on Fiscal Worries

The British pound has declined to $1.3455 amid concerns about fiscal policies after the Institute for Public Policy Research recommended instituting a windfall tax on banks benefiting from reserves held at the Bank of England. Analysts caution that fiscal policy might continue to negatively impact the sterling, particularly as Chancellor Rachel Reeves is expected to announce further tax increases. Despite these challenges, the pound is on track for a monthly gain of 2% against the dollar, bolstered by robust UK economic data and diminished expectations for early rate cuts by the Bank of England (BoE). Current market projections suggest less than a 50% probability of rate reductions occurring before the conclusion of 2025, with the initial decrease anticipated in spring 2026. Recent surveys have indicated the strongest business activity levels in a year, primarily driven by the services sector, following a period of heightened inflation.