Pounds Depreciates Further As Borrowing Cost Soar

The pound has depreciated to its lowest level for a over year as UK government borrowing costs have continued to rise as concerns about about public finances and the economy grow.

Sterling started to drop after UK 10-year bqqqorrowing costs rose again, surging to their highest level for 16 years.

Economists have warned the rising costs could lead to further tax rises or cuts to spending plans as the government tries to meet its self-imposed borrowing target.

The Treasury said: “No one should be under any doubt that meeting the fiscal rules is non-negotiable and the government will have an iron grip on the public finances.”

It added that Chancellor Rachel Reeves would “leave no stone unturned in her determination to deliver economic growth and fight for working people”.

The government said on Wednesday it would not say anything ahead of the official borrowing forecast from its independent forecaster due in March.

Shadow chancellor Mel Stride claimed that Reeves’ significant spending and borrowing plans in the autumn Budget were “making it more expensive for the government to borrow”.

“We should be building a more resilient economy, not raising taxes to pay for fiscal incompetence,” he said in a post on X.

The pound continued to fall on Thursday, slipping by 0.9% to $1.226 against the dollar, and borrowing costs rose further.

He said the rise in borrowing costs means that how much interest the government pays on its debt goes up and “eats up more of the tax revenue, leaving less for other things”.

Mr El-Erian added that it can also slow down economic growth “which also undermines revenue”.

“So the chancellor, if this continues, will have to look at either increasing taxes or cutting spending even more – and that’s going to impact everyone,” he said.

In December, the Bank of England said the economy is likely to have performed worse than expected in the last three months of 2024.

BBC/Ejiofor Ezeifeoma