Pound Sterling to Dollar Forecast: Fiscal Shock Sends GBP Sliding Toward 1.34

Modified: Sunday, 21 September 2025 17:30 BST - Written by Tim Boyer

STORY LINK Pound Sterling to Dollar Forecast: Fiscal Shock Sends GBP Sliding Toward 1.34

The Pound to Dollar exchange rate (GBP/USD) weakened on Thursday as fresh concerns over the UK’s fiscal outlook rattled gilts and reinforced fears of a “doom loop” between rising yields and higher debt-servicing costs.

Government borrowing surged to £18.0bn in August, the highest for five years, fuelling deficit worries ahead of the November budget.

Against this backdrop, the Pound to Dollar (GBP/USD) exchange rate fell to 10-day lows near 1.3480 before stabilising around 1.3500.

GBP/USD Forecasts: UK Borrowing Worries Hammer Pound and Gilts

Sterling came under pressure after the latest public finance figures revealed a sharp jump in the deficit, extending the five-month shortfall to £83.8bn compared with £67.6bn a year earlier, and well above Office for Budget Responsibility (OBR) projections.

Neil Wilson, UK investor strategist at Saxo Markets, was scathing:

“Sterling is rightly getting the treatment because the borrowing is a) too high, b) unsustainable, c) out of control and d) never going to change.”

The bond market reaction was swift. Ten-year gilt yields climbed to 4.70%, while 30-year yields jumped to 5.55%, edging back towards the 27-year highs hit earlier this month.

Analysts warned the move threatens to worsen the debt burden and intensify fiscal risks.

Matt Swannell, chief economic advisor to the EY ITEM Club, warned;

“the task of getting the public finances back on track could be made much more difficult by a downgrade to the OBR’s very optimistic growth forecasts, leaving a £20bn hole in tax revenue.”

PwC economist Nabil Taleb added;

“Months of high borrowing and the political challenge of cutting spending have all but wiped out the chancellor's headroom. The test will be whether she [Chancellor Reeves] can make them palatable to voters and markets.”

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TAGS: Pound Dollar Forecasts