Pound Hits Lowest Level Since August as Wage Growth Slows

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.

Sterling fell to around $1.33, its lowest level since early December 2025, as a resurgent US dollar drew support from safe-haven demand amid escalating tensions in the Middle East. US President Donald Trump noted that US munitions stockpiles at medium and upper-medium grades are at record levels and “virtually unlimited,” adding that wars could be sustained “forever.” Meanwhile, rising energy costs following the formal closure of the Strait of Hormuz and the continued suspension of Qatari LNG exports could push the Bank of England toward a more hawkish policy stance. Domestic political developments added to Sterling’s woes. Labour’s defeat in Gorton and Denton, a seat it had comfortably held in the 2024 general election, has heightened uncertainty over Party leader Keir Starmer and Chancellor Rachel Reeves, amid speculation that they could be replaced by ministers advocating higher fiscal spending, potentially placing further strain on the UK’s public finances.

Sterling slid to around $1.33 in early March, hitting its lowest level since December 2025, as a resurgent US dollar gained support from a flight to safety amid escalating tensions in the Middle East. The US and Israel launched coordinated strikes on Iran over the weekend, reportedly killing Iran’s Supreme Leader, Ayatollah Ali Khamenei. In retaliation, Tehran attacked US assets in neighboring countries. Pressure on the currency was compounded by mounting domestic political uncertainty following Labour’s shock defeat in Gorton and Denton, a seat it had comfortably won in the 2024 general election. The result raises uncertainty over Starmer and Chancellor Rachel Reeves, amid concerns they could be replaced by ministers pushing higher fiscal spending, which could further strain the UK’s public finances. Markets are now focusing on a new batch of domestic data due this week, including house prices, BoE consumer credit, mortgage approvals, the Halifax House Price Index, and PMI readings.