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The British pound extended its losses on Tuesday, falling to its weakest level since April as a stronger US dollar and deepening concerns over the UK’s fiscal outlook rattled investors ahead of a key Bank of England (BoE) decision. With the currency slipping nearly 0.7% in a single day, markets are increasingly uneasy about the country’s economic direction amid hints of upcoming tax hikes and tighter spending plans.
The decline follows the UK Chancellor’s warning that “hard choices” lie ahead in the November 26 budget, with the government seeking to rein in public debt while supporting growth. Among the measures under consideration is a potential 20% “settling-up” tax on the assets of people emigrating from the UK, expected to raise around £2 billion annually. The Chancellor emphasized that the budget aims for “growth with fairness,” focusing on balancing fiscal responsibility with inflation control.
Yet, the cautious tone has failed to steady confidence in the pound. Market attention now turns to the BoE’s policy meeting, where officials are expected to keep interest rates at 4.00%. Inflation remains sticky at 3.8%, nearly double the central bank’s 2% target, prompting policymakers to tread carefully as they assess the balance between supporting growth and avoiding a resurgence in prices.
However, fresh analysis from financial commentators suggests that a rate cut before the end of the year is becoming increasingly likely — a scenario that was considered remote just weeks ago. The latest inflation report in October, which showed consumer prices holding steady at 3.8% for the third consecutive month, spurred renewed bets on monetary easing. Long-term gilt yields fell sharply, signaling growing market conviction that the BoE will begin trimming rates, possibly in December, especially if the upcoming budget delivers fiscal tightening.
This evolving outlook is creating tension within the BoE’s Monetary Policy Committee. Analysts note that the November budget complicates matters for the central bank, which is wary of appearing to support the government politically by loosening monetary policy too soon. Some members may prefer to wait for the budget’s details before taking further action, leaving the decision finely balanced — and potentially forcing Governor Andrew Bailey to cast a decisive vote.
Despite the uncertainty, markets are already pricing in a 30% chance of a quarter-point cut this week and a two-thirds likelihood by December. The pound’s fall to multi-year lows against the euro and six-month lows against the dollar underscores the scale of investor unease. As one strategist put it, the UK faces a “policy mix problem,” where fiscal tightening and monetary easing must somehow coexist without undermining credibility or growth.
Across the Atlantic, the US dollar continues to strengthen, supported by resilient economic data and fading expectations of further rate cuts from the Federal Reserve. With official US labor market data delayed by a government shutdown, traders are focusing on the ADP private-sector employment report for fresh clues about the economy’s momentum.
For now, the pound’s trajectory remains vulnerable to both political and economic developments. Unless the November budget delivers a convincing plan for fiscal stability — and the BoE manages to navigate its internal divisions smoothly — sterling could face further turbulence as the year draws to a close.
