Published by Global Banking & Finance Review®
Posted on November 21, 2025
2 min readLast updated: January 20, 2026
Add as preferred source on GoogleSterling remains stable as the UK faces economic challenges ahead of the budget. With borrowing at record highs and declining business growth, the BoE may cut rates soon.
By Ozan Ergenay
LONDON (Reuters) -Sterling was little changed on Friday as investors awaited Britain's upcoming budget, with data showing the economy struggled before next week's major test for the currency and bond market.
The pound was last down less than 0.1% against the dollar at $1.3063. It was set to lose 0.8% for the week.
The last major economic releases before the budget next Wednesday painted a sombre picture, with borrowing hitting the highest on record outside of the COVID-19 pandemic in the first seven months of the year.
Business growth almost ground to a halt this month, retail sales tumbled in October, and a closely watched gauge of household sentiment fell.
"The data highlights the challenging position that the government is currently in ahead of the budget," Lee Hardman, senior currency economist at MUFG, said.
"The government borrowing figure is obviously worse than anticipated, but that won't feed into the government's budget proposals. It is too late for that."
British finance minister Rachel Reeves is expected to need to raise tens of billions of pounds to stay on track to meet her self-imposed fiscal targets.
Media reports last week that she would not raise income tax roiled British assets. Just days before she had appeared to prime the market that tax hikes were coming.
MUFG's Hardman said the timing of the budget will dampen the growth outlook heading into next year, putting pressure on the Bank of England to keep lowering interest rates.
"We think they'll cut rates in December and then deliver two more cuts by the summer," Hardman added.
The BoE kept interest rates unchanged in November in a tight 5-4 vote, but markets expect the central bank will resume its rate-cutting cycle when it convenes next month.
Money market traders are currently pricing in a more than 80% chance of a rate cut from the BoE in December.
Elsewhere, the pound was flat at 88.21 pence per euro, but declined against a strengthening yen after the Japanese currency found some support as officials stepped up their verbal intervention to stem the currency's decline.
Sterling was last down 0.5% at 204.71 yen, after rising to its highest since July last year on Thursday.
(Reporting by Ozan Ergenay in London, editing by Samuel Indyk and Andrew Heavens)
The UK economy refers to the economic activities and financial systems in the United Kingdom, including production, consumption, and trade of goods and services.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount over a specific period.
Currency is a system of money in common use, particularly for trade and transactions, which can include coins, banknotes, and digital forms.
Financial markets are venues where buyers and sellers engage in the trade of assets such as stocks, bonds, currencies, and derivatives.
Economic growth is the increase in the production of goods and services in an economy over a period, typically measured by GDP.
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