As recently as June, the UK government announced a record public sector net borrowing of £20.7 billion. This total was the second-highest ever observed for that month since such detailed records started in 1993. This figure is a huge surprise and a worrying sign of the country’s economic path. Important data is scheduled to come out later this week. Analysts are going to be looking at the July PMI numbers on Thursday and June retail sales figures on Friday as a sign of an approaching slowdown with bated breath.
Chancellor Rachel Reeves faces mounting calls to act as the new government flounders over these financial pressures. The latest borrowing data adds to the picture that public finances are under severe strain, increasing concerns of a growth slowdown. This grim picture should lead us to make hard choices about the state’s tax policy. Tax increases seem to be a foregone conclusion in this campaign. Such drastic measures would only compound the effects on consumer confidence and economic performance.
As overall market sentiment continues to turn against the US dollar, the British pound has remained remarkably strong against it, with GBP/USD hovering near the 1.15 line. Fears about the UK’s stressed public finances are hanging around the currency’s neck against the euro. Optimistic market watchers caution that further increases in sterling may be limited. They cite persistent concerns over an eventual slowdown in growth and potential tax hikes as key drivers.
The forthcoming PMI figures and retail sales report are anticipated to provide deeper insights into the health of the UK economy. Any weakness in these indicators would greatly exacerbate fears over economic stability and growth prospects. As businesses and consumers begin to bake in these expected future tax changes, the effect on spending and investment is highly unclear.