The British pound weakened against the US dollar on Tuesday, trading around $1.34, as investors reacted to an unexpected surge in the UK’s budget deficit. The currency faced selling pressure amid concerns over the government’s rising borrowing costs and widening fiscal gap.
According to the Office for National Statistics (ONS), the UK government borrowed £7.2 billion more than expected during the first half of the 2025 fiscal year, pushing the September budget deficit to £13.4 billion — a 21.2% increase compared to September 2024. This figure also exceeds the Office for Budget Responsibility (OBR)’s projections.
The report further revealed that total borrowing between April and September 2025 reached £71.8 billion, up by 17.2% year-on-year. The spike highlights the growing fiscal strain facing Chancellor Rachel Reeves, just weeks ahead of the November 26 budget presentation.
Economic analysts say the latest data compounds fears that the Chancellor may need to announce spending cuts or tax hikes worth up to £35 billion to stay within fiscal limits. Debt-interest payments alone surged by 66%, reaching £9.7 billion in September — the highest for that month on record — as inflation and weak tax receipts continue to weigh on public finances.
Meanwhile, investors await the UK Consumer Price Index (CPI) report for September, expected on Wednesday. Market expectations point to a 0.1% rise, which could lift the annual inflation rate to 4.0% from 3.8% in August, while core inflation may climb slightly to 3.7%. The Bank of England (BoE) is set to meet next week to review interest rate policy amid mounting pressure to balance inflation control with economic stability.
On the forex market, the GBP/USD pair traded between $1.3400 and $1.3445 on Monday before sliding to $1.3370, marking a four-day low. The sterling had briefly rebounded from last week’s three-and-a-half-month low of $1.3250, touching $1.3470 before losing momentum again.
Market analysts say the pound’s weakness reflects investors’ growing caution over Britain’s fiscal outlook and uncertainty surrounding the BoE’s next move. The situation underscores the fragile balance between fiscal expansion and monetary tightening as the UK grapples with slowing growth and high public spending.
