Speculators have launched their most sustained assault on sterling since the Brexit vote, official figures show.

In what is being called ‘a disastrous vote of no confidence in Labour’, hedge funds and other foreign exchange traders have been piling up bets against the pound for more than a year.

The wall of money wagered against sterling recently hit its highest level in almost a decade after net bets against the currency topped £6.5billion, figures from US financial regulator the Commodities and Futures Trading Commission show.

The news is a fresh pre-Budget blow to John Healey as the Chancellor looks to placate jittery markets with a speech to delegates at the Labour Party conference in Liverpool tomorrow.

Government borrowing costs around the world have surged as the Iran war drags on and bond markets fear higher energy prices will push up inflation.

Currency markets have been calmer but, at $1.32, sterling is now at its lowest level against the dollar in almost three months after the Bank of England – unlike other central banks – kept interest rates on hold.

That makes the pound less attractive for investors to own than other major currencies. 

Sentiment against sterling – seen as a proxy for the British economy – is now as negative among investors as it was shortly before the mini-Budget of unfunded tax cuts during the Liz Truss era in 2022 sent the pound sinking towards parity with the dollar.

‘This is a disastrous vote of no confidence in Labour,’ Shadow Chancellor Andrew Griffith told The Mail on Sunday. 

‘Traders are voting with their feet because they can see the only way this Government can make the numbers add up is by taxing and borrowing more to pay for higher public spending on welfare.’

Jane Foley, head of foreign exchange strategy at Rabobank, said: ‘Speculators are clearly wary about the pound, and certainly don’t want to hold a long position going into the Budget.’

The unbroken run of ‘sell’ orders against the pound is set to be the longest since the UK voted to leave the EU in 2016, the US commission’s figures show. 

A weaker pound helps exporters but also increases the price of imports, fuelling inflation and potentially limiting the scope for any interest rate cuts next year.

Britain also depends on what former Bank of England governor Mark Carney called ‘the kindness of strangers’ to fund its deficit – the borrowing needed to fill the gap between what the State spends and raises in taxes.

A third of UK Government debt is held by foreign investors, Foley noted, adding ‘they can be more sensitive to bad news’.

Prime Minister Andy Burnham last week defended his claim that Britain should not be ‘in hock’ to the bond markets.

But the UK’s soaring interest bill on its £3trillion of national debt has cramped Healey’s already limited room to balance books in next month’s Budget.

Half the £24billion ‘headroom’ left to him by his predecessor Rachel Reeves evaporated in the latest bond market rout, making more tax rises to pay for higher welfare and defence spending almost inevitable, experts say.

Chris Beauchamp, chief markets analyst at broker IG, said Burnham and Healey would be ‘feeling quite claustrophobic’ as ‘the walls close in around them’ after the public sector borrowed £18.3billion in August alone – £3billion more than expected.

‘Borrowing costs keep climbing, while borrowing itself is outpacing the teeny rise in tax receipts,’ Beauchamp added.

‘Everyone can diagnose the problem, but it’s far from clear that a PM who swept to power promising good things for all is capable of holding a fractious Labour Party together to carry out the tough work required.’

The Treasury declined to comment on market movements.

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