On January 22, 2025, the British pound weakened against major currencies, trading at 0.8458 against the euro and 1.2312 against the U.S. dollar. This decline comes amid growing speculation regarding a potential rate cut by the Bank of England (BoE) at its upcoming policy meeting on February 6. Recent economic data has shown slower-than-expected growth and easing inflation, leading analysts to predict a reduction of 25 basis points to 4.50%. [bef4f9b4]
The situation has been compounded by a significant increase in the U.K. budget deficit, which more than doubled in December to GBP 17.8 billion, the highest December borrowing in four years. This figure exceeded the forecast of GBP 14.6 billion, raising concerns about fiscal health. Public sector net borrowing for the financial year to December reached GBP 129.9 billion, GBP 8.9 billion higher than the previous year. [bef4f9b4]
Earlier in January, the pound had shown signs of recovery following the release of CPI data that indicated a moderation in inflation to 2.5% in December, down from 2.6% in November. This data had initially fueled optimism in the currency markets, with the pound rising to 0.8420 against the euro and 1.2241 against the U.S. dollar. However, the subsequent economic indicators have shifted sentiment back towards caution. [2c476efd]
As investors brace for the BoE's decision, the interplay between inflation rates, economic growth, and central bank policies will remain critical in shaping market dynamics. The upcoming U.S. consumer-price inflation report is also anticipated to influence global market trends, particularly in relation to the Federal Reserve's monetary policy. [2c476efd]
