Pound Plunges as Borrowing Costs Rise - with Economists Warning it's a 'Big Red Flag'

By Evans Momodu
1 minute read


The pound has plummeted to a nine-month low, trading at $1.233 against the dollar, amid rising concerns over the UK's fiscal health. This marks the lowest value for Sterling since April last year and comes alongside a significant spike in government borrowing costs.

Yields on UK government bonds, or gilts, surged, with 30-year gilt yields climbing 10 basis points to 5.37% and 10-year yields reaching 4.8%, the highest level since the 2008 financial crisis. As bond yields rise, their prices fall, reflecting growing investor unease.

Michael Brown, a strategist at Pepperstone, remarked that the trading patterns of gilts indicate heightened concern over the UK's precarious fiscal position.

Viral Patel, an FX and global macro strategist, described the combination of rising yields and a declining pound as a "big red flag," signaling potential fiscal instability. Patel warned that this trend could point to "fiscal un-anchoring," a situation where confidence in the government's financial policies begins to erode.

While these developments are troubling, analysts noted that the pound remains more stable than during the fallout from the 2022 mini-budget. However, the current trajectory has sparked warnings about the UK's economic outlook, with Patel summarising the situation as looking "ominous."
Source: Sky news