The pound slumped against major currencies on Friday after UK retail sales data came in below expectations, piling pressure on Chancellor Rachel Reeves as concerns mount over the health of the economy. As of 2.30pm, sterling was valued at 1.145 euros – down more than two cents since the start of trading.

It was also hovering around $1.34 – down 2.5 cents. According to figures from the Office for National Statistics (ONS), retail sales rose by 0.9% in June, well below forecasts of a 1.2% rebound.

The modest uptick followed a sharp 2.7% drop in May, and year-on-year growth was also weaker than expected at 1.7% compared to a 1.8% forecast, reported fxstreet.com

Analysts described the figures as “disappointingly small” and warned they showed limited consumer appetite despite recent wage growth and cooling inflation.

The data weighed heavily on the pound, which dropped against the dollar, euro, and yen as investors digested signs of a sluggish recovery in household spending.

While there was some strength in automotive fuel and department store purchases, other non-food retail categories suffered steep declines, dragging the overall figure lower.

Adding to the pressure, business activity data released on Thursday revealed further signs of a slowdown.

The UK’s S&P Global Composite PMI slipped to 51.0 in July, down from 52.0 in June and below market forecasts of 51.9.

That reading, which still indicates slight expansion, pointed to softer demand across both manufacturing and services and a cooling jobs market.

Ms Reeves has faced rising expectations to steer Britain’s fragile recovery without risking inflation or further fiscal slippage.

However, the latest data have fuelled concerns that the economy is losing momentum heading into the second half of the year, limiting her room to manoeuvre.

One potential bright spot came in the form of a new UK-India Free Trade Agreement, signed Thursday and praised by Prime Minister Sir Keir Starmer.

He said the deal would boost access for UK businesses in sectors such as alcohol, textiles, and cars.

However, economists warned that such benefits would take time to filter through and were unlikely to provide immediate support for sterling.

Attention now turns to the Bank of England’s next interest rate decision in August.

With weak data stacking up, some analysts believe the case for a rate cut is growing stronger—a move that could further undermine the pound if markets interpret it as a sign of economic fragility.

On Thursday, Lloyds’ boss warned Rachel Reeves against raising bank taxes in her autumn Budget, saying it would be at odds with the Government’s plans to drive economic growth.

Charlie Nunn’s remarks came as the banking giant revealed its earnings beat expectations for the first half of 2025, with both customer lending and savings balances growing.

He said: “We already have the highest tax regime on the financial services sector of any major economy… we’re completely comfortable with that.

“But it is important when you look at the competitiveness of the City of London and the financial services sector that we remain a competitive tax regime.”

The Pound has surged to a seven-month high against the US Dollar, indicating increasing market jitters and doubts about the stability of the US currency. A combination of economic concerns and sharp criticism from Donald Trump directed at Federal Reserve Chairman Jerome Powell has renewed fears over the potential undermining of central bank independence.

As a result, the Dollar slumped to three-year lows, while the Pound surged above the 1.3400 mark, reports currencynews.co.uk. The euro also strengthened, reaching 41-month highs above 1.1550, while gold hit a new record. US equity futures showed signs of decline as markets responded to the heightened uncertainty.

MUFG analysts warned that any further moves to challenge Mr Powell’s position could provoke significant market volatility, particularly in foreign exchange markets.

Stephen Innes from SPI Asset Management noted that the reputational damage to the US as a global leader is now undeniable, with investors and central banks factoring in the growing instability of US policy.

Mr Trump’s continued attacks on Mr Powell – including branding him “Mr Too Late” and a “major loser” – have deepened concerns about the political influence over monetary policy, further undermining confidence in the Dollar.

Trade tensions with China also contributed to the Dollar’s decline, as Beijing’s harsh rhetoric escalated and undermined investor sentiment.

Mr Trump’s focus on tariffs and domestic taxation has made it more difficult for the US to secure beneficial trade agreements, further impacting the Dollar’s standing on the global stage.

Commenting, Stephen Innes of SPI Asset Management, said: “The dollar is slipping on more than just thin liquidity and soft data — it’s slipping on faith.

“Markets are starting to question one of the bedrock assumptions behind the dollar’s reserve currency status: an independent, inflation-fighting Fed.

“With President Trump ramping up public pressure on Powell to slash rates “now,” we’re not just flirting with jawboning — we’re staring down the barrel of a credibility unwind.”

The weakness was not just about economic cracks forming, Mr Innes stressed.

He explained: “This is a broader confidence bleed. Trump’s rhetoric signals that even the White House is front-running a slowdown. And that means the usual fallback narrative — ‘we’re strong, the Fed has our back’ —is starting to fray.

“The Easter Monday dollar dump was no fluke.

“It was a clean sweep: rate expectations got repriced, and the dollar’s safe-haven mantle took a hit.”

The pound was valued at just under $1.34 as of 10am.

The pound has dropped to its lowest level in nine months after government borrowing costs continued to rise – leaving Rachel Reeves “on the verge” of breaking her self-imposed fiscal rules, economists warn.

It comes as UK 10-year borrowing costs rose to their highest level since the financial crisis of 2008. It’s thought the Chancellor could be forced into further tax rises or cuts to spending plans.

State borrowing costs hit their highest level for almost 17 years on Wednesday as a sell-off continues in the bond market and ongoing investor concerns over the threat of stagflation, PA reports.

The rise in the cost of servicing government debts could cut into Labour’s expected financial headroom in a potentially worrying sign of how investors see fiscal sustainability in the UK.

This contributed to Sterling dropping by as much as 1.1% to $1.233 against the US dollar on Wednesday.

The yield on the benchmark 10-year UK gilt, which reflects the cost of government borrowing, climbed by roughly 12 basis points to a peak of 4.81%.

After the autumn Budget, Reeves was left with only £9.9 billion of headroom to meet her revised fiscal rules. This came despite a £40 billion package of tax increases to fuel higher spending.

Higher debt interest costs may mean the Chancellor would need to trim spending plans or bring in more revenue than expected to meet the fiscal rules.

Kallum Pickering, chief economist at brokerage Peel Hunt, said: “If bond yields rise further, Reeves may be forced to make the economically damaging decision of further increasing taxes or cutting back on planned public spending to balance the books.”

The Chancellor committed last year to having only one fiscal tax-changing event a year.

On Wednesday, the Prime Minister’s official spokesperson said: “I’m obviously not going to get ahead… it’s up to the OBR (Office for Budget Responsibility) to make their forecasts and they’ll make their forecasts at the spring statement in the usual way.

“But I would say when the Government came into office, we made very clear why it’s so important to manage the public finances to deal with the £22 billion black hole that was in the public finances, because having stability in the public finances is precursor to having economic stability and economic growth.”

A Treasury spokesperson told The Telegraph: “No one should be under any doubt that meeting the fiscal rules is non-negotiable and the Government will have an iron grip on the public finances.

“UK debt is the second lowest in the G7 and only the OBR’s forecast can accurately predict how much headroom the government has – anything else is pure speculation.”