Pound falls as borrowing costs rise to highest since 2008
Published On Jan 8, 2025, 12:29 PM
The UK pound has dropped to its lowest point in nine months, primarily due to increasing government borrowing costs, which have reached their highest levels since the 2008 financial crisis. Economists warn that this could lead to tax increases or cuts in government spending. The rising borrowing costs threaten the economic stability and investment plans of the current government, especially in light of upcoming forecasts from the Office for Budget Responsibility (OBR). This situation mirrors trends in the US, where borrowing costs are also climbing amid political uncertainty. Investors are advised to stay informed about upcoming government plans and forecasts, as these may have significant implications for economic stability and currency value.
Stock Forecasts
FXB
Negative
The significant rise in UK borrowing costs and the subsequent weakening of the pound raise concerns about the overall economic stability of the UK. If the government chooses to increase taxes or reduce spending to address the borrowing costs, it could further hinder economic growth. The political climate, especially with looming changes in US fiscal policy, adds to this uncertainty.
TLT
Negative
The rising costs of borrowing and fiscal challenges facing the UK government make bonds less attractive in comparison to other assets. Investors may look to safer investments or those expected to yield better returns in more stable economies, leading to a potential decline in demand for UK government bonds. This could influence interest rates and overall market outlook.
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