Finance
Sterling slips as UK's fiscal hole brought into focus
Published by Global Banking & Finance Review®
Posted on October 28, 2025
3 min readLast updated: January 21, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on October 28, 2025
3 min readLast updated: January 21, 2026
Sterling fell against major currencies as UK's fiscal issues resurfaced. The Bank of England is expected to hold rates steady, with potential cuts next year.
LONDON (Reuters) -The pound slipped versus the dollar and the euro on Tuesday as the UK's fraught fiscal backdrop was brought into stark focus again, ahead of next week's Bank of England meeting and a closely-watched budget just one month away.
Britain's budget watchdog is expected to cut a key productivity forecast by a larger-than-expected 0.3 percentage points, people familiar with the situation said, potentially leading to a 20 billion-pound ($26.8 billion) hit to the public finances.
At 1232 GMT, the pound was 0.24% lower at $1.3298, making it the worst-performing major currency against the dollar of the day. It was also weaker against the euro, which rose 0.3% to 87.6 pence.
Francesco Pesole, FX strategist at ING, said the trigger for sterling weakness was news of the Office for Budget Responsibility's plan to cut its productivity forecast by 0.3 percentage points.
"That automatically widens the fiscal hole that (finance minister Rachel) Reeves needs to fill with the Autumn budget," he said.
The gilt market, meanwhile, held fairly steady, with 10-year yields trading just below 4.4%.
The countdown is on ahead of Reeves's budget on November 26 with both tax rises and spending cuts on the horizon.
Meanwhile the Bank of England (BoE) is expected to keep interest rates at 4.00% at its November 6 meeting, and a small majority of economists polled by Reuters now expect no further policy easing this year.
Traders are still pricing in a 35% chance of a BoE rate cut at the next meeting and money markets show they believe the base rate will be some 20 basis points below the current 4% level.
"I don’t think the market thinks that ahead of a critical budget, the Bank of England will show its hands. It'll probably want to digest the information first and then start cutting next year in about February," Kamal Sharma, Senior FX Strategist at Bank of America, said.
The pound came off a peak of $1.3787 in July but remains up 6.4% versus the dollar in 2025.
The euro briefly hit its highest level against the pound since May 2023 in early trading before paring some of those gains.
"The pop above the 87.5 level probably saw a few stops being run," said Michael Brown, senior research strategist at Pepperstone, which he said exacerbated the brief spike.
"The lack of follow-through behind that move is not only notable, but will likely also worry the longs a little. Really needs a break above 87.7 to get the move motoring a little more," he said.
(Reporting by Lucy Raitano in London; editing by Amanda Cooper and Andrew Heavens)
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, managing monetary policy, and ensuring financial stability.
Interest rates are the amount charged by lenders to borrowers for the use of money, typically expressed as a percentage of the principal.
The foreign exchange market is a global decentralized market for trading currencies, where participants can buy, sell, exchange, and speculate on currency values.
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