Pound hits 14-month low against dollar as CBI hits out over ‘hole in confidence’

The head of Britain’s biggest lobby group has accused the government of damaging business “confidence and trust”, as the pound hit a new 14-month low against the US dollar.

Rupert Soames, the chair of the Confederation of British Industry (CBI), criticised the measures being introduced by the government.

Sterling fell by nearly a cent, or 0.8%, against the dollar on Monday to $1.2111, the lowest since the start of November 2023 with the currency in focus after turmoil in the bond markets last week which piled pressure on the chancellor, Rachel Reeves.

The dollar has surged to its highest since late 2022 against a trade-weighted basket of currencies as investors have adjusted to expectations of delays in interest rate cuts from the US Federal Reserve fuelled by strong jobs data on Friday.

The euro also extended losses against the dollar, falling to its lowest level since September 2022. The single currency slid by nearly 0.6% and is now worth $1.0185.

The rise of the dollar has added to pressure on the UK government, which has faced sustained criticism from lobby groups since raising taxes on business in Reeves’s budget in October.

Soames said ministers had created “a hole in the confidence and trust that business has in government” after the tax rise and an increase in the minimum wage.

Big businesses are also pushing back against the government’s employment rights bill, which includes banning zero-hours contracts and introducing protections from day one of a job.

Soames also said that the government’s proposed strengthening of employment rights could prompt “quite an ugly rush” of job losses in the UK.

“As currently drafted, there are elements of the employment rights bill that are going to be powerful dissuaders from companies employing people,” he told BBC Radio 4’s Today programme.

The government is bracing for more bond market turbulence, after a bruising week in which ministers felt compelled to respond to concerns that government borrowing could increase further as economic growth struggles. More borrowing tends to push up bond yields, in effect the interest rate paid by the government, as the debt becomes less attractive.

The yield on the 30-year gilt jumped as much as six basis points (0.06 percentage points) to 5.472%, the highest since 1998 as investors sold off UK government bonds. It then eased back to about three basis points up on Monday. The yield on the benchmark 10-year gilt also rose by about four basis points to 4.88%.

Investors are concerned over a potential repeat of the experience of Liz Truss, whose time as prime minister was abruptly ended by bond market turmoil in the wake of a “mini-budget” by the then chancellor, Kwasi Kwarteng. However, economists have said that conditions have not yet worsened that much.

George Cole, an economist at Goldman Sachs, an investment bank, wrote in a note to clients on Friday that “the size of currency depreciation on a trade-weighted basis is small relative to previous periods of gilt market stress”, and much of the move against the dollar has come “during a period of conspicuous [US dollar] strength”.

However, he added that the “sell-off raises the stakes for upcoming data”, including on UK inflation.