Sterling's Plunge: Economic Turmoil Follows UK Budget Announcements

The British pound faces its worst decline against the euro in two years, following Finance Minister Rachel Reeves' budget announcement, which increased taxes to fund public services. The budget sparked concerns among investors about inflation and economic growth, contributing to market volatility and shifting interest rate expectations.

The British pound is facing its most significant two-day drop against the euro in two years, triggered by a new tax-and-spend budget released by Finance Minister Rachel Reeves. The budget aims to repair public services but has raised inflation and growth concerns among investors.

The pound's decline follows the biggest tax increases since 1993 and adjustments to fiscal rules allowing increased borrowing for economic investments. While the euro benefits from a surprising uptick in Germany's economy, the dollar gains strength with robust U.S. economic data.

Additionally, forecasts from the UK's Office for Budget Responsibility now predict inflation to average 2.6% next year. This anticipation has affected market behavior, with a notable sell-off in UK government bonds and shifting expectations for Bank of England interest rate cuts.

(With inputs from agencies.)