Sterling extended losses toward $1.33, its weakest level in a week, after inflation data came in below market expectations, fueling speculation of early interest rate cuts by the Bank of England. Headline inflation held steady at 3.8% in September, defying forecasts of a rise to 4%, as food price growth continued to ease. Meanwhile, the core inflation rate edged down to 3.5% from 3.6%, also undershooting expectations of 3.7%. The softer readings offered some relief for Chancellor Rachel Reeves, who recently signaled plans to unveil “a range of policies” in her November 26 budget aimed at “bearing down on some of the costs that people face.” Government borrowing, however, totaled £99.8 billion in the first half of the fiscal year—£7.2 billion above the OBR’s forecast. Looking ahead, markets now anticipate that the Bank of England could start cutting interest rates early next year, as inflation is expected to continue moderating and labor market data point to further signs of cooling.
