GBP Struggles For Traction As UK Economic Concerns Grow

GBP Struggles For Traction As UK Economic Concerns Grow

Wednesday 29th October 2025 – 12:09 (GMT)

The pound has come under renewed pressure as investors brace for a tough UK budget expected to combine tax rises with spending cuts. Markets are increasingly pricing in the risk of a fiscal squeeze that could stifle already weak growth. Analysts at Nomura, Wells Fargo and Rabobank have turned more bearish on sterling, warning that confidence in the currency may falter further.

Sterling’s decline reflects broader concerns about the UK’s economic outlook. The Office for Budget Responsibility is expected to downgrade productivity forecasts, widening the fiscal gap facing the next chancellor. The pound has slipped to its weakest level against the euro since 2023 and is set for its longest monthly losing streak in nearly a decade.

The macro picture remains bleak: growth is stalling, inflation is stubborn and borrowing costs are high. The government faces a delicate balancing act – restoring fiscal discipline without pushing the economy deeper into slowdown. Without credible measures, markets fear rising gilt yields and eroding investor confidence.

Attention is also turning to the Bank of England which meets next week to set interest rates. While inflation has eased from its peak, it remains above target, leaving policymakers torn between maintaining high rates to anchor prices and cutting to support growth. Traders are split on whether the Bank will signal an early pivot or hold steady, but any dovish tone could deepen pressure on sterling.

The upcoming budget could prove a decisive moment. Austerity might reassure bond markets but risks undermining fragile consumer and business confidence. Much now hinges on how fiscal and monetary policy align or clash. For now the market mood is one of caution and the pound remains a barometer of Britain’s economic unease.