FX.co ★ Sterling Slides on Energy Shock Fears

The British pound slipped back below $1.34 by the end of a volatile week, as investors flocked to the US dollar amid mounting inflation fears driven by an energy price surge linked to the Iran conflict. Brent crude and European natural gas prices climbed to multi-year highs, intensifying pressure on the UK economy and bolstering expectations of three Bank of England interest rate increases in 2026. The BoE kept its key rate unchanged at 3.75% on Thursday in a unanimous decision, while warning that the crisis in the Middle East could further elevate global energy and commodity prices. Policymakers now anticipate a near-term rebound in CPI inflation, effectively undoing some of the recent progress in cooling domestic price and wage growth. Further straining the economic outlook, UK public sector borrowing rose to £14.3 billion in February 2026, up from £12.1 billion a year earlier and well above market forecasts of £8.5 billion. This marks the second-highest February borrowing figure on record, exceeded only in 2021.