UK reports bleak economic data, pound slips amid political crisis

The pound sinks against the US dollar while the latest official data shows the UK government borrowing surge and retail sales slump.

UK government borrowing surged and retail sales slumped in September, official data showed on Friday, while the British pound sank against the US dollar on political uncertainty after the resignation of UK Prime Minister Liz Truss.

Public sector net borrowing stood at 20 billion pounds ($22bn), the second-largest September level on record, as decades-high inflation sees interest on debt repayments balloon.

Retail sales volumes tumbled 1.4 percent as sky-high prices curbed consumer purchasing. The figure was better, however, than the 1.7-percent slide in August.

The data comes one day after Truss resigned in the wake of markets turmoil triggered by her budget of tax cuts funded by debt.

The public borrowing figure exceeded analysts’ consensus of 17.2 billion pounds ($18.9bn), which was already far above the government’s own prediction.

“The weakness in retail sales and further overshoot of the … [government] public borrowing forecast won’t make the next prime minister‘s task any easier in navigating the economy through” various crises, concluded Ruth Gregory, senior UK economist at Capital Economics.

Interest payments on government debt surged to 7.7 billion pounds ($8.4bn) in September, “largely reflecting the broader economic environment of soaring inflation”, noted CEBR economist Pushpin Singh.

Government borrowing is linked to the wider RPI measure of inflation, which stands at a huge 12.6 percent in the UK.

Pound slips

On Friday, pound sterling slid 1 percent against the US dollar, before recovering slightly, while the yield on the British government’s 30-year bond climbed back above 4 percent.

Sterling slid beneath $1.12, having bounced above $1.13 Thursday after Truss quit.

The dollar strengthened also on expectations that the US Federal Reserve would press ahead with its programme of bumper interest rate increases to target decades-high inflation.

European stock markets fell heavily, mirroring losses in Asia and on Wall Street, as investors fretted that rising global interest rates could tip the world economy into recession.

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