Pound Slides to Six-Month Low as Markets Brace for Bank of England Decision, November Budget

The British pound extended its losses against the US dollar on Friday, slipping to a six-month low as investors priced in a potential interest rate cut by the Bank of England (BoE) ahead of the UK’s November budget.

Sterling closed slightly above $1.3115, weighed down by renewed fiscal concerns and heightened pressure on the UK government’s spending plans. The sell-off came as markets reacted to growing expectations of looser monetary policy amid lingering economic challenges.

Analysts say the combination of fiscal strain and cautious sentiment is fuelling the pound’s decline. “UK fiscal pressure has become a concern,” one analyst noted, adding that the situation “has triggered steep sell pressure across forex markets” just as China and the US move to strengthen their trade ties.

The ongoing trade détente between the world’s two largest economies continues to bolster the US dollar, which has advanced against most major currencies this week. Sterling, meanwhile, has endured a difficult stretch despite a relatively light economic calendar.

While recent inflation data came in stronger than expected, some analysts remain sceptical that it will sway the BoE’s Monetary Policy Committee (MPC). “Inflation data is unlikely to convince the Bank of England’s MPC to cut rates when it next meets on Nov. 5, with its decision due a day later,” they said.

In October, the pound fell 2.19% to $1.3151, marking its steepest weekly decline in months amid broader dollar strength. Several analysts have warned that persistent inflationary pressures could prompt the BoE to deliver further rate cuts through 2025.

UK productivity is projected to fall by 0.3%, which could worsen the fiscal outlook. The Office for Budget Responsibility (OBR) forecasts that the budget deficit could widen by £21 billion by 2030, adding to an already significant £22 billion shortfall. Such pressures limit the government’s flexibility as Chancellor Rachel Reeves prepares for her first budget statement.

“The combination of UK fiscal pressures and potential Bank of England rate cuts keeps the pound under pressure,” analysts said. “The current market backdrop reflects broader concerns over the UK’s economic stability.”

The GBP/USD pair has now fallen to a seven-month low, with technical indicators pointing to further weakness ahead. The divergence between a hawkish Federal Reserve and growing fiscal challenges in the UK suggests continued upside for the dollar.

Analysts at VT Markets said “The US Dollar is benefiting from a flight to safety and higher interest rate expectations.”

With fiscal headwinds intensifying, the focus now turns to the November 6 rate decision and November budget, both of which could define the near-term trajectory of sterling. As one analyst summed up, “Chancellor Reeves has very little room to manoeuvre without breaking election promises.”