The British pound fell again on Friday after news showed that UK government borrowing in August was much higher than expected. This is a major challenge for Chancellor Rachel Reeves as she prepares the autumn budget. Even strong retail sales data, which came in above forecasts, was not enough to support the pound.
The Office for National Statistics reported that the UK borrowed £18 billion in August, compared to the forecast of £12.5 billion. This was the highest monthly borrowing in five years. The increase added pressure to an economy already struggling with high inflation and slow growth.
Markets quickly reacted, with investors worrying about the UK’s rising debt and the risk of a credit rating downgrade. Such a downgrade would make it harder for the country to attract investment and raise the cost of servicing debt.
Rachel Reeves now faces the tough task of presenting a budget that supports growth but does not worsen the debt situation. She must balance the need for spending on infrastructure and social programs with pressure to cut costs. The autumn budget will be a key moment for the economy and for the pound, which is likely to react strongly to any new plans.
In the first five months of the fiscal year, the deficit has already reached £83.8 billion, which is £11.4 billion above forecasts and £67.6 billion higher than last year. The rise is due to increased spending on public services, benefits, and debt interest.
On the positive side, UK retail sales rose by 0.5% in August, matching July’s growth and above the 0.4% forecast. Warm weather boosted sales of clothing and bakery goods, even as sales of computers and telecom equipment dropped. This shows that consumers kept spending despite rising prices and weaker wages.
GBP/USD Technical Outlook
For bulls, the nearest resistance is at 1.3570. A break above this level could open the way to 1.3620, though it will be difficult to push beyond. The next big target is 1.3655. On the downside, bears will try to take control at 1.3495. If this level breaks, GBP/USD could drop to 1.3455 and possibly extend toward 1.3420.
