Teaching activity

Pound Falls in Value: A-Level Business In The News

Mike Mills

13th January 2025

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What's the story?

Pound drops to 12-month low as UK government borrowing costs hit 16-year peak.

Recent market movements show significant economic pressure in the UK, with the pound dropping 0.9% to $1.226 against the dollar in a single day. At the same time, government borrowing costs have reached levels not seen since 2008.

These developments could force difficult choices, as higher debt servicing costs may require either tax increases or spending reductions to maintain the government's fiscal rules.

Treasury Minister Darren Jones has downplayed concerns, attributing the market movements to various international and domestic factors. However, opposition figures argue that the government's borrowing strategy is proving costly for British taxpayers.

The situation is compounded by recent economic indicators showing stagnant growth and persistent inflation. Economic experts, including Mohamed El-Erian, warn that sustained high borrowing costs could force the government to make tough choices between raising taxes or reducing public spending.

While these market pressures are part of a global trend affecting various countries including the US, they pose particular challenges for the UK government’s fiscal policy.

The government is maintaining its position until the next official borrowing forecast in March, though analysts suggest these market conditions create significant challenges for meeting spending needs while adhering to current fiscal rules.

Pound falls in value


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Mike Mills

Mike is an experienced Head of Department, teacher and A-level Business examiner. Mike is also a popular presenter on tutor2u CPD courses and student workshops.

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