The Pound held steady on Tuesday, pausing after Monday's sharp rise, as investors assessed data revealing a significant jump in UK government borrowing in June, a sign of the ongoing weakness in Britain's public finances.
Sterling, which climbed 0.6% on Monday, its largest daily gain in a month, was last trading at $1.3493 at the time of writing, showing minimal movement. It also remained stable against the Euro, which stood at 86.7 pence.
Britain borrowed more than anticipated in June, as soaring inflation drove up government debt expenses, official figures revealed, fuelling speculation that further tax hikes may be needed later this year.
Public sector net borrowing reached £20.7 billion last month, significantly above the Office for Budget Responsibility's forecast of £17.1 billion for June, Reuters reports.
“These overshot expectations yet again, a fact that should refocus minds on UK fiscal sustainability risks, especially after warnings by the ONS that the 20.7 billion pound figure recorded represents 'the second-highest June borrowing since monthly records began in 1993, after that of June 2020',” according to analysts at Monex.
“As we have noted previously, this is not a Sterling positive dynamic, leaving risks to the Pound tilted to the downside ahead of Thursday’s PMI release,” they added.
The borrowing figures have reinforced investor expectations that Chancellor Rachel Reeves may need to introduce additional tax increases later this year to stay aligned with her fiscal goals.
Meanwhile, a separate report released on Tuesday showed grocery inflation in Britain climbed to 5.2% in the four weeks leading up to 13 July, up from 4.7% in the previous month’s reading and marking the highest rate since January of last year, intensifying the financial strain on UK households.
According to market researcher Worldpanel by Numerator, which released the report, nearly two-thirds of households say they are “very concerned” about grocery costs and are increasingly turning to supermarket own-brand products to save money.
These findings are consistent with data from last week showing that overall consumer price inflation in the UK rose more than anticipated in June, reaching its highest level since January 2024.
The Bank of England is widely expected to lower interest rates by 0.25 percentage points next week, with at least one additional cut anticipated before the end of the year.