The pound has come under renewed pressure at the end of a torrid week for the UK currency, falling to fresh 14-month lows against the dollar.
Sterling lost almost a cent, to stand just above $1.22 at one stage, on the back of higher support for the greenback after US employment data came in much stronger than expected.
It was seen as denting the prospects for US central bank rate cuts this year – a scenario that tends to be supportive of a domestic currency.
That has not been the case for the UK, however, which is also seeing the prospects for rate cuts this year slip away.
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The pound is on course to have lost more than 2% this week on the back of a growing crisis of confidence in the country’s economic prospects and state of the public finances under chancellor Rachel Reeves.
Financial markets now expect to see just one rate reduction by the Bank of England this year due to stubbornly high inflation and flatlining growth.
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The main worry is that the UK is facing a slew of higher prices as businesses have warned they will pass on budget tax hikes from April at a time when a raft of other bills are also due to shoot up.
Corporate lobby groups have declared that firms will also cut investment, jobs and the pace of wage rises to help offset the higher costs from measures such as elevated employer national insurance contributions.
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Water and council tax bills are on course to rise by more than the rate of inflation.
Energy bills, it is feared too, are set to rise further amid high demand for gas and weak storage levels Europe wide.
The strong US economic data was partly credited for a 4% lift in Brent crude oil prices to $80 a barrel.
Rising oil and gas prices are also inflationary as higher costs are usually reflected at fuel pumps and within supply chains within weeks of wholesale price shifts.
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Ms Reeves is facing a particular headache from increases in the risk premiums demanded by investors to hold UK government debt in the form of bonds – known as gilts.
Yields, the effective interest rate, on 30-year gilts have risen to levels not seen since 1998 this week while other shorter term bonds also saw spikes.
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The 30-year yield stood beyond 5.4% on Friday afternoon, up more than six basis points on the day.
A higher cost to service government debt means there is less money for Ms Reeves to spend on other commitments.
The chancellor resisted Conservative and Lib Dem calls to cancel a trade trip to China this weekend and is widely expected to signal that spending cuts are coming to ensure she keeps within her fiscal rules.
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The Treasury, on Wednesday, attempted to calm the markets by issuing a statement to insist that the chancellor would not break those commitments.
Bond yields have been rising across many major economies too ahead of the return of Donald Trump to the White House. Investors are baulking at the potential for economic damage caused by threatened trade tariffs.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said of the US employment data’s impact on the UK: “Worries about interest rates staying higher for longer have been reignited by this stronger-than-expected labour market data.
“Sentiment has soured on equity markets and the bond market strop out is showing signs of intensifying.”
