Sterling came under further pressure at the end of a torrid week for the British currency, falling to a new 14-month low against the dollar.
Sterling lost almost a cent, to just above $1.22 at one point, on higher support for the greenback after US jobs data -United States turned out to be much stronger than expected.
This has been seen as a hindrance to the US central bank’s prospects of lower rates this year – a scenario that tends to support the domestic currency.
However, this has not been the case in the United Kingdom, which also sees the prospects of rate cuts this year receding.
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Sterling is on track to have lost more than 2% this week due to a growing crisis of confidence in the country’s economic outlook and the state of public finances under Chancellor Rachel Reeves.
Financial markets now expect just one rate cut from the Bank of England this year due to stubbornly high inflation and stagnant growth.
The main concern is that the UK faces a series of price rises, with businesses warning they will pass on budget tax rises from April, when a series of other bills should also fly away.
Business lobby groups said businesses would also cut investment, jobs and the pace of wage increases to help offset the higher costs of measures such as increased employer national insurance contributions.
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Water and municipal tax bills are on track to increase more than the rate of inflation.
There are also fears that energy bills could rise further due to high gas demand and low storage levels across Europe.
Further market movement on Friday represented headwinds ahead.
Strong U.S. economic data partly contributed to Brent crude oil prices rising 4% to $80 per barrel.
Rising oil and gas prices are also inflationary because higher costs are typically passed on to fuel pumps and within supply chains within weeks of wholesale price changes.
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Ms Reeves faces a particular headache due to rising risk premiums demanded by investors to hold UK government debt in the form of bonds – known as gilts.
Yields, the effective interest rate, on 30-year government bonds this week reached levels not seen since 1998, while other shorter-term bonds also saw spikes.
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The 30-year yield stood above 5.4% Friday afternoon, up more than six basis points on the day.
A higher cost of servicing the public debt means Ms Reeves has less money to spend on other commitments.
The chancellor has resisted calls from the Conservatives and Liberal Democrats to cancel a trade trip to China this weekend and is widely expected to signal that spending cuts are coming to ensure she sticks to her fiscal rules.
The Treasury tried to calm markets on Wednesday by issuing a statement insisting the chancellor would not break those commitments.
Bond yields have also risen in many major economies as Donald Trump’s return to the White House approaches. Investors are balking at the potential economic damage caused by threats of tariffs.
Susannah Streeter, head of finance and markets at Hargreaves Lansdown, said of the impact of US jobs data on the UK: “Concerns about interest rates remaining at low High levels were revived by stronger-than-expected labor market data.
“Sentiment has deteriorated in equity markets and the bond market slump is showing signs of intensifying.”