Sterling remained largely steady on Friday as investors anticipated the UK’s forthcoming budget, amid data indicating the economy faced difficulties ahead of next week’s critical test for the currency and bond markets.

The Pound was last slightly down, losing less than 0.1% against the Dollar to trade at $1.3063 at the time of writing, and was on track for a weekly decline of 0.8%

Recent key economic figures, released just before Wednesday’s Budget, painted a grim picture, showing borrowing levels reached their highest outside the COVID-19 period during the first seven months of the year.

Business expansion nearly stalled this month, retail sales dropped sharply in October, and a key measure of consumer confidence declined, Reuters reports.

The data underscores the difficult situation the government faces ahead of the budget.

The government borrowing numbers are clearly higher than expected, say analysts, but they won’t influence the budget proposals, as it’s too late for any adjustments.

Chancellor Rachel Reeves is anticipated to need to secure tens of billions of pounds to remain on course to meet her self-set fiscal targets.

Media reports last week suggesting she would not raise income tax unsettled British markets, coming just days after she had signalled that tax increases might be forthcoming.

Furthermore, the timing of the Budget is likely to weigh on growth prospects for next year, increasing pressure on the Bank of England to continue cutting interest rates.

The Bank of England left interest rates unchanged in November after a narrow 5-4 vote, but markets anticipate that the central bank will restart its rate-cutting cycle at next month’s meeting.

Money market traders are currently pricing in over an 80% probability of a BoE rate cut in December.

Elsewhere, the Pound held steady at 88.21 pence per Euro but fell against the strengthening Yen, as the Japanese currency gained support with officials intensifying verbal interventions to curb its decline.

Indeed, Sterling was last down 0.5% at 204.71 Yen, after having climbed to its highest level since July of last year on Thursday.