MARKET NEWS

The pound (GBPUSD=X) pushed slightly higher on Friday as traders weigh up the impact of the UK government’s fiscal policy fiasco on Britain's economy.

Sterling was up 0.4% at $1.121 at the time of writing, and down 0.3% against the euro (GBPEUR=X) at €1.1428. It also comes as the euro (EURUSD=X) is edging back towards parity with the dollar at 98 cents.

On Wednesday, ratings agency Fitch downgraded the government debt rating to "negative" from "stable" in the wake of the mini-budget.

It warned that the "large and unfunded fiscal package" could lead to a significant increase in the government’s deficits over the medium term.

"The large and unfunded fiscal package announced as part of the new government's growth plan could lead to a significant increase in fiscal deficits over the medium term," Fitch said.

The government plans to borrow £43bn in an effort to boost UK growth.

Fitch also warned that Britain's economy will shrink in 2023, despite prime minister Liz Truss and chancellor Kwasi Kwarteng's mini-budget.

The ratings agency expects the general government deficit to reach 7.8% of gross domestic product (GDP) in 2022 and 8.8% next year, and general government debt to jump to 109% of GDP by 2024.

The slump in the British pound, spurred by concerns about borrowing costs, has raised fresh fears about the impact on wider markets.

On Friday, new figures from Halifax showed the UK property market is cooling as house prices fell 0.1% last month to average £293,835.

"Stamp duty cuts, the short supply of homes for sale and a strong labour market all support house prices, the prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead," Kim Kinnaird, director of Halifax Mortgages said.