Sterling plunges as UK public borrowing rises unexpectedly

London - 20 July 2010

- “Discouraging” data will toughen Coalition’s resolve for tax hikes and spending cuts -

Sterling plunged this morning after the Office for National Statistics announced that public sector net debt rose to £14.5 billion, a record 63.9% as a percentage of GDP. The public sector also posted a record cash requirement figure of £20.905 billion in June, up from £20.213 billion in June 2009. The latest figure exceeded economist’s expectations for a fall to £15 billion.

Sterling fell to a session low against the euro in response to the data, tumbling to 1.1724. It also fell 0.4% against the US dollar, to $1.5219.

Tiffany Burk, European Market Analyst at Travelex Global Business Payments comments, “This is the biggest public sector net cash requirement for June since records began in 1984 and it is helping to send the pound lower in trading this morning.

“Whilst the data is slighly backward looking, as Labour’s policy measures are still in place, it does highlight how dependent the Government has been on borrowing to date and is a very discouraging figure. No doubt the data will toughen the Coalition’s resolve to persevere with the swingeing spending cuts and tax hikes they have planned.”

Burk feels that the pound will recover from its current low, “The downside to sterling is limited because risk appetite remains positive in broader markets. Equity markets are trading higher and investors remain optimistic over the release of the upcoming stress tests for the 91 European banks. This confidence is helping to support risk appetite.“

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