The British pound saw a muted performance on Friday, closing out a week of declines driven by political unease and fiscal policy doubts.
Sterling held steady at $1.36, and dipped 0.1% against the euro to 86.26 pence.
On a weekly basis, it slipped 0.4% against the dollar and around 1% versus the euro – its worst showing since early April.
Welfare Reforms Spark Market Reaction
Earlier in the week, UK assets faced selling pressure following pushback within the Labour Party over proposed welfare reforms.
The backlash raised concerns about Finance Minister Rachel Reeves’ position and rekindled comparisons to the 2022 market turmoil under former PM Liz Truss.
As the Starmer government marks one year in office, questions loom about its fiscal balancing options.
“There is speculation that given the difficulties the government has faced in finding savings from welfare budgets, tax rises are likely in the Autumn Budget,” said Susannah Streeter of Hargreaves Lansdown.
Interest Rate Outlook Adds to Pressure
Expectations that the Bank of England could lower interest rates sooner have also weighed on the pound.
Markets are pricing in a 25-basis-point rate cut in September, with another likely before year-end.
S&P Global reinforced concerns by warning the UK government’s struggle to trim welfare spending highlights its limited fiscal flexibility.
Despite recent volatility, the pound is still near a four-year high against the dollar, buoyed by overall dollar weakness and optimism from a U.S.-UK trade deal.