Government could have problems with selling bonds due to investor fright over the UK's economic prospects, it has been suggested.
The pound is still trading at far below yesterday's levels, with investors continuing to take fright at Britain's economic prospects following Alistair Darling's Budget speech.
Following the chancellor's announcement that the economy would shrink by 3.5 percent and government debts would hit £175 billion this year, the pound plunged almost two percent against the dollar, going from $1.465 to $1.444 over the afternoon. Sterling also suffered against the euro, dropping from €1.132 to €1.1135.
As of midday today, the pound was trading at $1.453 and $1.113.
Movements on currencies markets generally indicate investor opinion on the strength of an economy. A weakening currency means that more investors are selling holdings rather than buying them - signifying a lack of confidence.
Accordingly, sterling has been consistently weak over recent months, due to the UK's perceived vulnerability to the economic downturn. However, renewed optimism that the property market, which had been hit hard by the credit crunch, could soon recover briefly sent sterling above $1.50 last week.
Commenting, Stephen Heath, chief executive of currency experts FairFX, said: "In one of the bleakest Budgets for decades, the chancellor once again cut growth forecasts and confirmed borrowing will increase… all of which will make the pound seem even less attractive."
Speaking to the BBC, Russell Bloom, an analyst at Action Economics, suggested that the government could have difficulties with selling enough bonds to fund its debts. "The foreign exchange market is worried about the debt market's ability to absorb the amount of issuance for the next year," he said.
