Pound Tumbles Amid UK Borrowing Surge and BoE Decisions

The British pound is facing its largest two-day decline since July, following a surge in UK public borrowing and decisions by the Bank of England that underscore the challenging balance policymakers must strike between growth and inflation.

Official data revealed that public sector borrowing from April to August hit 83.8 billion pounds, exceeding predictions by 11.4 billion pounds. This increase exacerbates the fiscal challenges finance minister Rachel Reeves confronts leading up to her November budget, anticipated to include tax hikes to adhere to fiscal rules without alarming financial markets.

Moreover, the Bank of England maintained interest rates and elected to slow government bond sales to mitigate market volatility. While inflation is near double the central bank's target, their options to lower rates and bolster the economy are limited, especially as signs of labor market weakness emerge.