The Sterling pound had fallen to its lowest level while UK borrowing costs hit their highest in 16 years since 2008.

Prices are rising at their fastest pace since March. In December, the Bank of England said the economy was likely to have performed worse than expected in the last three months of 2024, having held the interest rates at 4.75 per cent.

Governments generally spend more than they rise in tax so they borrow money to fill the gap, usually by selling bonds  known as Gilts to investors.

The pound has fallen in value against the dollar over the last few days. On Tuesday it was worth $1.25 but trading at $1.23, as Labour Party under Sir Keir Starmer fighting economic credibility.

Economists have warned that the rising costs could lead to further tax increases or spending cuts as the government tries to meet its self-imposed rule not to borrow to fund day-to-day spending.

The pound fell by 0.9 per cent to $1.226 against the dollar on Thursday while borrowing costs rocketed earlier in the day but calmed by mid-afternoon.