Sterling Stumbles: UK's Economic Woes Trigger Pound's Plunge

The British pound fell after data indicated a contraction in business output and a drop in retail sales. Sterling reached a low against the dollar, prompting fears of rate cuts by the Bank of England. PMI data also suggests challenges face hiring and input prices amid tax hikes.

The British pound took a significant hit on Friday following concerning economic data showing a contraction in business output for November and a substantial drop in October's retail sales. This decline marks the pound's lowest point against the dollar since May, reinforcing fears of a potential recession.

Specifically, Sterling was last reported down by 0.56% at $1.2517, and if forthcoming data continues to highlight economic weaknesses, the Bank of England might have to implement more aggressive rate cuts than previously anticipated. The S&P Global Flash Composite Purchasing Managers' Index fell from 51.8 in October to 49.9 in November, indicating a contraction for the first time in over a year.

The downturn is regarded as a significant test of the British government's recent budget. Deutsche Bank's chief UK economist, Sanjay Raja, noted that input prices are rising even as hiring plans in manufacturing and services decline, posing a dual challenge of potential inflation and reduced demand. Concurrently, gilt yields declined while there was a slight increase in market expectations for Bank of England easing.

(With inputs from agencies.)