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Gilts · Political Uncertainty · Pound · UK Economy
The British pound initially dropped 1.16% to 1.110 against the US dollar on Friday morning, driven by heightened political uncertainty following Liz Truss's resignation and weaker-than-expected economic data, though it later recovered 0.56% to 1.1298 by day's end.
The pound also declined 0.64% against the euro to 1.14. This market volatility was fueled by official figures from the Office for National Statistics (ONS) revealing government borrowing hit £20 billion last month, exceeding economists' expectations by over £2 billion, primarily due to rising debt interest from inflation.
Additionally, retail sales slipped 1.4% last month, significantly worse than the 0.5% decline predicted by experts. The cost of government borrowing increased as yields on UK gilts rose by 2%, or 0.08 percentage points, to 4.04%.
Matthew Ryan, head of market strategy at Ebury, stated that uncertainty in British politics remains rife, which does little to inspire confidence in UK assets, as traders await the fiscal announcement and Office for Budget Responsibility (OBR) forecasts due on October 31.