Sterling fell toward $1.33, its lowest since December 9, as a stronger US dollar drew safe-haven demand amid Middle East tensions, while investors reacted to Chancellor Rachel Reeves’ downgraded growth forecasts. US President Donald Trump said the military campaign against Iran could last four to five weeks but could be extended if needed. Meanwhile, surging energy costs following the Strait of Hormuz closure and suspended Qatari LNG exports, may push the Bank of England toward a hawkish stance. Domestic political and economic developments added to Sterling’s downward pressure. The Office for Budget Responsibility (OBR) lowered its UK growth forecast for 2026 to 1.1%, down from 1.4% projected in November, even before factoring in potential energy price shocks. However, the OBR revised its outlook for 2027 and 2028, projecting growth of 1.6% in both years. The agency also forecasted lower borrowing and inflation over the coming period.
