Pound falls below $1.29 as UK inflation slows and spring statement signals weaker growth
GBP trades near $1.2910 after soft CPI and bleak fiscal forecast
The British pound slid to a near two-week low below $1.29 on Wednesday as investors digested weaker-than-expected inflation data and a downbeat spring statement from UK Finance Minister Reeves. Sterling briefly fell to $1.2880 before rebounding toward 1.2910 in Thursday’s Asian session, buoyed slightly by declining U.S. Treasury yields.
UK annual inflation eased to 2.8% in February, undershooting the 2.9% forecast and cooling from January’s 3.0%. Core inflation also slowed, rising 3.5% compared to 3.6% expectations. While services inflation remained stubborn at 5%, the broader disinflationary trend strengthened market bets that the Bank of England may consider easing rates in the coming months. The softer CPI print aligns with the BoE’s own projections and follows recent dovish commentary from policymakers.
GBP/USD price dynamics (Feb 2025 - Mar 2025) Source: TradingView.
Spring statement cuts growth outlook, raises borrowing projections
In her spring statement, Minister Reeves downgraded the 2025 GDP growth forecast to 1% from 2%, while lifting the inflation outlook to an average of 3.2%, up from 2.6% in October. The government now expects public sector net borrowing to decrease from £137.3 billion (4.8% of GDP) in 2024–25 to £74.0 billion (2.1% of GDP) by 2029–30. However, 2025–26 borrowing is projected to be £12.1 billion higher than earlier estimates, despite planned welfare reforms and departmental cuts.
Across the Atlantic, the U.S. dollar softened amid falling yields, with 2-year and 10-year Treasury yields retreating to 4.0% and 4.34%, respectively. But geopolitical and trade tensions continue to cloud the outlook. President Trump’s newly signed 25% tariff on auto imports—set to begin April 2—has revived concerns about global trade disruption. Additional pushback came from Fed officials, with St. Louis Fed President Alberto G. Musalem warning that protectionist policies could destabilize inflation expectations.
Outlook hinges on central bank cues and data flow
Looking ahead, the pound’s trajectory will depend on upcoming economic data and further signals from the BoE. Thursday’s U.S. GDP and jobless claims figures could influence GBP/USD dynamics in the near term. However, growing divergence between U.S. and UK policy paths may keep volatility elevated.
In earlier analysis, we highlighted how GBP/USD was facing strong resistance near the 1.30 level, with bullish momentum vulnerable to macroeconomic surprises. With UK inflation now easing faster than expected and fiscal projections worsening, the pound’s upside may be constrained without a clear signal from the BoE or a broader risk-on shift.
