FX.co ★ Sterling Falls as UK Scraps Tax Hikes

The British pound fell to approximately $1.31, approaching a seven-month low, after reports emerged indicating that the government has decided to abandon its plans to increase income-tax rates prior to the upcoming budget on November 26. According to the Financial Times, Prime Minister Keir Starmer and Chancellor Rachel Reeves have withdrawn prior proposals to raise basic and higher tax bands, choosing instead to utilize less direct revenue measures to address a £30 billion fiscal deficit. This significant policy reversal has triggered concerns regarding fiscal responsibility and political stability, leading investors to shy away from sterling-linked assets and intensifying the strain on UK debt.

The currency's decline was exacerbated by economic data that fell short of expectations, revealing only modest economic growth in the third quarter, alongside a monthly contraction in GDP for September. These disappointing figures have heightened speculation that the Bank of England may implement a rate cut next month, especially in light of earlier data highlighting a jobless rate that has reached a four-year high and wage growth that has decelerated to its slowest pace since early 2022.